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ViXS Reports Fourth Quarter and Fiscal 2014 Results

TORONTO, ON--(Marketwired - April 15, 2014) - ViXS Systems Inc. (TSX: VXS) a pioneer and leader in media processing solutions, reported its fourth quarter and fiscal year results for the period ended January 31st, 2014. All results are reported under International Financial Reporting Standards ("IFRS") and in U.S. dollars, unless otherwise specified. ViXS reported Q4FY14 revenue of $7.0 million, gross margin of 40.7%, total comprehensive loss of $7.5 million, and non-IFRS net loss of $6.7 million.

Q4FY14 Financial Summary

  • Revenue of $7.0 million.
  • Comprehensive loss of $7.6 million, or $(0.15) per share, including $1.5 million of unrealized currency losses.
  • 54% of revenue was from new products (those which started shipping in calendar 2013) versus 6% for same products one year ago.
  • $25.6 million of cash and cash equivalents and no bank debt outstanding at end of quarter.
  • Gross margin of 40.7%, including $0.4 million impact from IP/mask amortization (540 basis points). Excluding the effects of amortization, support contracts, SDKs, and variances, product margin was 49.6%.

FY14 Financial Summary

  • Revenue of $30.4 million.
  • Comprehensive loss of $32.6 million, or $(1.01) per share; on non-IFRS basis a loss of $17.0 million, or $(0.53) per share.
  • Gross margin of 46.8%; product margin (as defined above) for fiscal 2014 was 50.1%.

Products / Customer Developments

  • ViXS began shipments of XCode6400 family in F4Q14, the only shipping system-on-a-chip to support UltraHD 4K 10-bit HEVC.
  • XCodePro Chipsets became the first to support HEVC processing up to Ultra UD 4 Resolutions for Cloud Content Distribution.
  • ViXS announced RDK license and commencement of development of RDK platform
  • ViXS 10-bit HEVC decoder the de facto standard for testing 4K HEVC streams at NAB

Customer and Partnership Announcements

  • Intel selects ViXS as partner for its DOCSIS-based media processing platform supporting 10-bit HEVC for the large cable, IPTV and satellite markets. Intel has roughly half of the DOCSIS 3.0 market share.
  • NTT-Plala selects XCode6400 to drive its UltraHD 4K HEVC 60p "Hikari-TV" VOD trial throughout Japan, on Sumitomo STB.
  • Panasonic began shipments of their latest UltraHD 4K consumer ready television, based on ViXS XCode 6403.
  • NGCodec and ViXS partnered to license technology and intellectual property for H.265/High Efficiency Video Codec Main 10 Profile decoder, targeting the mobile market.

"ViXS' most recent announcements are demonstrating that we are on track to take a market leadership position in the roll-out of HEVC 4K products," said Sally Daub, President and CEO of ViXS. "In the fourth quarter, ViXS shipped the first and currently only SoC fully compliant with Ultra High Definition 4K HEVC 10-bit. XCode 6400 was showcased by several key partners at CES and NAB 2014 setting the golden reference for 4K HEVC decode. This was followed by a partnership announcement with Intel and customer announcements with NTT-Plala and Panasonic. We believe ViXS' design wins to date, pipeline, and market momentum will fuel revenue growth in 2015 and the years ahead."

                                                                            
                         Three Month Period Ended       Fiscal Years Ended  
                        January    October    January                       
                            31,        31,        31,      January 31,      
Dollar amounts in                                                           
 U.S. dollars              2014       2013       2013       2014       2013 
                     -------------------------------------------------------
Amounts in thousands                                                        
                                                                            
Revenues                 $7,039     $7,294     $9,576    $30,416     35,697 
  Cost of sales           4,173      4,017      4,767     16,180     18,957 
                     -------------------------------------------------------
Gross margin              2,866      3,277      4,809     14,236     16,740 
                     -------------------------------------------------------
Operating expenses                                                          
  Research and                                                              
   development            4,548      4,572      5,632     17,180     26,917 
  Selling, general                                                          
   and administrative     5,808      4,233      2,650     14,634     13,449 
                     -------------------------------------------------------
Total operating                                                             
 expenses (1)            10,356      8,805      8,282     31,814     40,366 
                     -------------------------------------------------------
Income (loss) before                                                        
 finance costs and                                                          
 income, convertible                                                        
 preferred share                                                            
 revaluation                                                                
 adjustment and                                                             
 income taxes            (7,490)    (5,528)    (3,473)   (17,577)   (23,626)
                     -------------------------------------------------------
Other income                                                                
 (expense):                                                                 
  Finance costs            (152)       290       (227)   (21,493)      (472)
  Share offering                                                            
   costs                      -          -                     -       (509)
  Finance income             33         58         21        184         51 
  Convertible                                                               
   preferred share                                                          
   revaluation                                                              
   adjustment                 -          -                 6,365     29,584 
                     -------------------------------------------------------
Total other income                                                          
 (expense)                 (119)       348       (206)   (14,944)    28,654 
                     -------------------------------------------------------
Net income (loss)                                                           
 before taxes           ($7,610)   ($5,180)   ($3,679)  ($32,522)     5,028 
  Income tax expense        (10)        16        (94)       (61)      (118)
                     -------------------------------------------------------
Net income (loss) for                                                       
 the period              (7,620)    (5,164)    (3,773)   (32,583)     4,910 
  Exchange difference                                                       
   on translating                                                           
   foreign operations         -          3         71        (31)        27 
                     -------------------------------------------------------
Comprehensive income                                                        
 (loss) for the                                                             
 period                 ($7,620)   ($5,161)   ($3,702)  ($32,614)     4,937 
                     =======================================================
Income (loss) per                                                           
 share attributed to                                                        
 common equity                                                              
 holders                                                                    
  Basic                  ($0.15)    ($0.10)    ($0.75)    ($1.01)     $1.00 
  Diluted                ($0.15)    ($0.10)    ($0.75)    ($1.01)    ($0.91)
Weighted average                                                            
 number of common                                                           
 shares outstanding                                                         
  Basic                  50,225     50,169         63     32,401      4,917 
  Diluted                51,110     51,404        124     32,401     27,152 
                                                                            
(1) Includes share-                                                         
 based transaction                                                          
 expense of:                                                                
Research and                                                                
 development                250        277        350      1,013      1,390 
Selling, general and                                                        
 administrative             251        197        222        785      1,058 
                     -------------------------------------------------------
                            501        474        572      1,798      2,448 
                     =======================================================
                                                                            

Financial Results

Revenues for the fourth quarter of fiscal 2014 totaled $7.0 million, compared to the $7.3 million recognized in the third quarter of fiscal 2014, and the $9.6 million recognized in the fourth quarter of fiscal 2013. Revenue in the quarter was sequentially weaker due primarily to the timing of shipments for MoCA and cloud infrastructure products including the occurrence of Lunar New Year at quarter-end which impacted our Asia market. Revenues for the fiscal year ended January 31, 2014 totaled $30.4 million, a decrease of $5.3 million compared to the prior fiscal year. This decrease in revenue was primarily due to the timing of product transitions as customers migrated from older generation products to new solutions based on our more integrated next generation products, including the recently released XCode6000 Series (which commenced commercial shipments in January 2014), but was partially offset by ViXS' growing penetration in the MoCA and cloud video infrastructure markets. Revenue from new products (those which started shipping in last 15 months) exceeded half of our revenue for 4Q fiscal 2014, as revenue from older products (such as the XCode 4000 and older lines) declined from 78% of revenue in fiscal 2013 to 38% of revenue in fiscal 2014. Gross margin for the fourth quarter of fiscal 2014 was 40.7%, which represents a 4.2% margin decrease from the previous quarter level of 44.9%, and a 9.5% decrease from fourth quarter of fiscal 2013 gross margin of 50.2%. The sequential decrease in Q4 margin was primarily due to third party IP and amortized mask costs (which most other comparable fabless companies do not expense as COGS) associated with taping out the new the XCode 6000 chip design, as well as a higher concentration of lower margin MoCA products sold during the quarter. While ViXS continues to closely manage costs the incremental amortization of third party IP and mask costs ($380 thousand in the quarter) adversely impacted Q4 margin by roughly 539 basis points. ViXS product margin would have been 49.6% in the current quarter, without these amortization and other variance related costs. Gross margin for the fiscal year ended January 31, 2014 was 46.8%, which represents a 0.1% decrease from the 46.9% level over the same period last year. 

R&D expenses were flat on a sequential basis, at $4.5 million. SG&A expenses of $5.8 million were up $1.6 million sequentially, primarily due to $1.45 million of unrealized currency losses on the revaluation of our cash balance, from the weaker Canadian dollar in the quarter.

Comprehensive loss for the fourth fiscal quarter was $7.6 million, or $(0.15) per share, compared to the $5.2 million loss in the third fiscal quarter, and a $3.3 million increase from the $3.7 million loss in the fourth quarter of fiscal 2014. The $2.4 million sequential increase in comprehensive loss was mainly due to a $1.5 million unrealized currency translation loss and lower than expected revenue in the quarter. Comprehensive loss for Fiscal 2014 was $32.6 million, or $(1.01) per share, compared to a gain of $4.9 million for fiscal 2013 due primarily to the expenses and accounting related to our going public process in July and the decline in revenue.

Non-IFRS net loss for the current quarter (as defined in the Non-IFRS Financial Measures section) totaled $6.8 million, as compared to a $4.8 million loss in the previous quarter and a $4.8 million increase from the $2.0 million loss in the fourth quarter of fiscal 2013. Non-IFRS net loss for the fiscal year ended January 31, 2014 totaled $16.8 million, an $8.0 million improvement as compared to the $24.8 million loss over the same period the previous year. The year-over-year decrease in non-IFRS net loss from operations was primarily due to cost efficiencies realized from restructuring our operations in fiscal 2013 and early fiscal 2014, along with a better product mix.

For More Information

In conjunction with this announcement, ViXS management will be holding a conference call on Tuesday, April 15, 2014, at 5:00 P.M. Eastern time / 2:00 P.M. Pacific time to discuss the Company's results for the fourth quarter and fiscal 2014.

                                                                            
DATE:           Tuesday April 15, 2014                                      
                                                                            
TIME:           5:00 P.M. EST / 2:00 P.M. PST                               
                                                                            
DIAL IN NUMBER: Local / International: 416-850-9144                         
                North American Toll: Free: 1-866-400-3310                   
                                                                            
REPLAY NUMBER:  Local / International: 416-915-1035                         
                North American Toll: Free: 1-866-245-6755                   
                Passcode: 774089                                            
                                                                            
WEBCAST:        http://public.viavid.com/index.php?id=108419                
                The webcast will be archived for 90 days                    
                                                                            

About ViXS Systems Inc.

ViXS is the pioneer and market leader in designing revolutionary media processing semiconductor solutions for the broadcasting and consumer electronics industries, with over 437 patents issued and pending worldwide, numerous industry awards for innovation, and over 29 million media processor shipments to date. ViXS is driving the transition to UltraHD 4K across the entire content value chain by providing professional and consumer grade chipsets that support the new High Efficiency Video Coding (HEVC) standard up to Main 10 Profile, reducing bandwidth consumption by 50% while providing the depth of color and image clarity needed to take advantage of higher-resolution content. ViXS' XCodePro 3xx family is ideal for UltraHD 4K infrastructure equipment, and the XCode 6xxx family of system-on-chip (SoC) products achieve unprecedented levels of integration that enable manufacturers to create cost-effective consumer entertainment devices.

ViXS is headquartered in Toronto, Canada with offices in Europe, Asia and North America. VIXS, the ViXS® logo, XCode®, XCodePro™, XConnex™ and Xtensiv™ are trademarks and/or registered trademarks of ViXS. Other trademarks are the property of their respective owners. For more information on ViXS, visit our website: www.vixs.com.

Non-IFRS Financial Measures

This press release makes reference to non-IFRS net income (loss) and non-IFRS net income (loss) per share (basic and diluted), which are non-IFRS measures. These non-IFRS measures are disclosed as a complement to financial results prepared in accordance with IFRS in order to provide a further understanding of ViXS' results of operations from management's perspective. In particular, ViXS uses non-IFRS measures to provide investors with supplemental measures of its operating performance and highlight trends in its core business that may not otherwise be apparent solely from IFRS financial measures. ViXS management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess ViXS' ability to meet its future capital expenditure and working capital requirements. ViXS believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers.

Non-IFRS net income (loss) is defined as total comprehensive income (loss) before stock-based compensation expense, finance costs, share offering costs expensed, listing fees, finance income, convertible preferred share revaluation adjustment, fair value adjustment on warrant liability, provision for repayable government assistance, income tax expense and exchange difference related to translating foreign operations. Non-IFRS net income and non-IFRS net income per share (basic and diluted) do not have any standardized meanings prescribed by IFRS and may not be comparable to similar measures presented by other companies. Non-IFRS net income and non-IFRS net income per share (basic and diluted) should not be considered in isolation or as a substitute for total comprehensive income (loss) and earnings (loss) per share (basic and diluted) prepared in accordance with IFRS.

                                                                            
                         Three Month Period Ended       Fiscal Years Ended  
(in thousands of U.S.   January    October    January                       
 dollars)                   31,        31,        31,      January 31,      
                           2014       2013       2013       2014       2013 
                     -------------------------------------------------------
Comprehensive income                                                        
 (loss) for the                                                             
 period                 ($7,619)   ($5,161)   ($3,702)  ($32,614)    $4,937 
R&D adjustments                                                             
  Stock-based                                                               
   compensation                                                             
   expense                  250        277        350      1,013      1,390 
  Provision for                                                             
   repayment of                                                             
   government                                                               
   assistance                 -        264        891       (627)    (2,091)
Selling, general and                                                        
 administrative                                                             
  Stock based                                                               
   compensation                                                             
   expense                  251        197        222        785      1,058 
Other Income/Expense                                                        
 adjustments                                                                
  Listing Fees               15       (336)         -      2,421          - 
  Share offering                                                            
   costs                      -          -          -          -       (509)
  Accreted interest                                                         
   on provision for                                                         
   repayment of                                                             
   government                                                               
   assistance               165          -        270        165          - 
  Fair value                                                                
   adjustment on                                                            
   warranty liability         -          -          -     18,219          - 
Other adjustments                                                           
  Convertible                                                               
   preferred share                                                          
   revaluation                -          -          -     (6,365)   (29,584)
  Exchange                                                                  
   differences on                                                           
   translating                                                              
   foreign operations         -         (3)       (71)        31        (27)
                     -------------------------------------------------------
Non-IFRS net loss       ($6,938)   ($4,762)   ($2,040)  ($16,972)  ($24,826)
                     =======================================================
                                                                            

Forward-Looking Statements

Statements in this press release that are not historical facts constitute "forward-looking statements" within the meaning of applicable securities laws. Such statements include, but are not limited to, statements regarding ViXS' projected revenues, gross margins, earnings, growth rates, the impact of new product design wins, market penetration and product plans. The use of terms such as "may", "anticipated", "expected", "projected", "targeting", "estimate", "intend" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause ViXS' actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. 

These factors include, but are not limited to, our history of losses and the risks associated with not achieving or sustaining profitability; our dependence on a limited number of customers for a substantial portion of our revenues; fluctuating revenue and expense levels arising from changes in customer demand, sales cycles, product mix, average selling prices, manufacturing costs and timing of product introductions; risks associated with competing against larger and more established companies; risks associated with changing industry standards such as MoCA 2.0; risks related to intellectual property, including third party licensing or patent infringement claims; risks associated with adverse economic conditions in Asia; our dependence on a limited number of supply chain partners for the manufacture of our products; and other factors discussed in the "Risk Factors" section of the Information Circular of ViXS Subco Inc. (formerly W7 Acquisition Corp.) dated June 12, 2013, prepared in connection with the going-public transaction of ViXS, a copy of which is available on SEDAR at www.sedar.com. All forward-looking statements are qualified in their entirety by this cautionary statement. ViXS is providing this information as of the date of this release and does not undertake any obligation to update any forward-looking statements contained in this release as a result of new information, future events or otherwise.

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