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ViXS Reports Second Quarter Fiscal 2015 Results

21% Sequential Increase in Revenue

TORONTO, ON--(Marketwired - September 04, 2014) - ViXS Systems Inc. (TSX: VXS), a pioneer and leader in media processing solutions, reported its second quarter fiscal 2015 results for the period ending July 31, 2014 today. All results are reported under International Financial Reporting Standards ("IFRS") and in U.S. dollars, unless otherwise specified. ViXS reported Q2FY15 revenue of $9.0 million, total comprehensive loss of $(3.8) million and non-IFRS net loss of $(3.5) million.

Q2FY15 Financial Summary

  • Revenue of $9.0 million, a 21% sequential increase quarter over quarter.
  • Gross margin of 43.3%, a 1.2% point sequential improvement quarter over quarter.
  • Product margin of 47.4%, flat quarter over quarter.
  • IFRS Comprehensive loss of $(3.8) million, or $(0.07) per share, a 25% improvement on a loss of ($5.1) million or $(0.10) per share in the previous quarter.
  • Non-IFRS net loss of ($3.5 million), or $(0.07) per share, a 19% improvement on loss of $4.4 million or $(0.09) per share in the previous quarter.
  • $19.8 million of cash and equivalents, with no outstanding bank debt at end of quarter.

Customer, Product and Corporate Announcements

  • Sharp launched its ViXS powered Ultra High Definition (UHD) Recorder and Television products that began shipping to Japanese consumers in June.
  • EchoStar/Sling Media launched the ViXS powered Slingbox M1 and SlingTV "TV Anywhere" products into the consumer retail market.
  • ViXS' XCode 6400 powered the world's first UHD HEVC 4Kp60 10 bit live broadcast with Sky Deutschland.
  • Michael Economy, seasoned semiconductor executive, joined ViXS' sales team as Vice President of Strategic Accounts with a focus on the PayTV segment.
  • Tom Hearne, Chief Financial Officer of theScore Inc., was appointed to ViXS' Board of Directors.

Q2FY2015 Results:

ViXS reported revenue of $9.0 million for the second quarter of fiscal 2015 representing 21% growth from revenue of $7.4 million in the previous quarter, and a 12% increase from revenue of $8.0 million in the same quarter last year. This higher revenue was driven by increased demand across both Xcode and XConnex products as ViXS' customers launched their own next generation products in the marketplace. Q2FY2015 is only the second full quarter of commercial shipments of the XCode6000 which experienced double digit growth in Q2. The XCode6000 remains the only commercial shipping product to support Ultra High Definition (UHD) video 4K-60p and HEVC 10-bit capabilities. 

Gross margin increased by 1.2% points sequentially to 43.3% in Q2FY15, resulting from a favourable mix of higher-margin integrated solutions and lower amortization expenses as volumes of our new products ramped. Product margin, which excludes the effects of amortization of mask-sets and IP, support contracts and SDKs, was flat quarter over quarter at 47.4%. 

Operating expenses decreased by $0.5 over the previous quarter to $8.0 million. As expected, operating expenses increased by $3.7 million over the same quarter last year, mainly due to a $2.2 million reduction in government assistance, relating to TPC and ITC adjustments recognized before the company went public. In addition, normal incremental public company expenses such as legal, regulatory and investor relations are now incurred. The company continues to invest in our product roadmap to further improve our technological competitive advantage. 

Geographic revenue diversification continued with Japan comprising 35% of second quarter revenues; Taiwan 29%; Europe 13%; China 10%; Mexico 6%, United States 3%; and Canada 3%.

Comprehensive loss for the first fiscal quarter was $(3.8) million, or a loss of $(0.07) per share basic and diluted. This represents a $1.3 million decrease from the loss in the first quarter of fiscal 2015 of $(5.1) million or a loss of $(0.10) per share basic and diluted.

Non-IFRS net loss for the second fiscal quarter was $(3.5) million, or $(0.07) per share (basic and diluted), compared with a non-IFRS net loss of $(4.4) million, or $(0.09) per share (basic and diluted), in the previous quarter. This quarter over quarter decrease in non-IFRS net loss reflects higher revenue and lower operating expenses, a result of investment timing in development and working capital that was skewed towards the first quarter of fiscal 2015. 

ViXS finished the quarter with total cash and cash equivalents of $19.8 million as of July 31, 2014, a slight sequential increase of $0.2 million as the company improved its balance sheet and roughly $1.4 million of certain scheduled payments occurred after the quarter closed.

"ViXS continues to build momentum with our new XCode6000 family while maintaining robust sales throughout the rest of our product portfolio," said Sally Daub, President and CEO, ViXS Systems, Inc. "We are demonstrating solid growth sequentially and year-over-year while keeping our costs in line, clearly demonstrating our market leadership in media processing and monetizing our bet on Ultra HD and HEVC."

For More Information
In conjunction with this announcement, ViXS management will be holding a conference call on Thursday, September 4, 2014, at 5:00 P.M. Eastern Time to discuss the Company's results for Q2 fiscal 2015.

FISCAL 2Q15 CONFERENCE CALL DETAILS:

DATE: 
Thursday September 4, 2014 

TIME: 
5:00 P.M. EDT 

DIAL IN NUMBER: 
Local / International: 647-426-1845
North American Toll: Free: 1-866-782-8903 

REPLAY NUMBER: 
Local / International:416-915-1035
North American Toll: Free: 1-866-245-6755
Passcode: 429942   

WEBCAST: 
http://momentumstreaming.com/index.php?id=110624
The webcast will be archived for 90 days 

WEBSITE:   
To view the press release or any additional financial information, please visit the Investor Relations section of the ViXS website at: http://investor.vixs.com/investor-relations/ 
      

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial information derived from the Company's unaudited condensed consolidated interim financial statements for the three and six month periods ended July 31, 2014. The selected financial information was prepared in accordance with IFRS in a manner consistent with the Company's annual financial statements. The following information should be read in conjunction with these statements and the accompanying notes.

                                                          Six Month Period  
                            Three Month Period Ended           Ended        
                                      April                                 
                          July 31,     30,    July 31,  July 31,   July 31, 
Dollar amounts in U.S.                                                      
 dollars                    2014      2014      2013      2014       2013   
                          --------  --------  --------  --------  --------- 
Amounts in thousands                                                        
                                                                            
Revenue                     $8,989    $7,441    $8,059   $16,430    $16,083 
  Cost of sales              5,095     4,305     3,812     9,400      7,990 
                          --------  --------  --------  --------  --------- 
Gross margin                 3,894     3,136     4,247     7,030      8,093 
                          --------  --------  --------  --------  --------- 
Operating expenses                                                          
  Research and                                                              
   development               3,655     4,255     2,019     7,910      8,060 
  Selling, general and                                                      
   administrative            4,255     4,246     2,581     8,501      5,158 
                          --------  --------  --------  --------  --------- 
Total operating expenses                                                    
 (1)                         7,910     8,501     4,600    16,411     13,218 
                          --------  --------  --------  --------  --------- 
Loss before finance costs                                                   
 and income, currency                                                       
 gain, convertible                                                          
 preferred share                                                            
 revaluation adjustment                                                     
 and income taxes           (4,016)   (5,365)     (353)   (9,381)    (5,125)
                          --------  --------  --------  --------  --------- 
Other income (expense):                                                     
  Finance costs                (37)      (20)   (2,796)      (57)   (21,631)
  Finance income                22        24        93        46         93 
  Currency gain                236       291       555       527        565 
  Convertible preferred                                                     
   share revaluation                                                        
   adjustment                    -         -     7,550         -      6,365 
                          --------  --------  --------  --------  --------- 
Total other income                                                          
 (expense)                     221       295     5,402       516    (14,608)
                          --------  --------  --------  --------  --------- 
Income (loss) before                                                        
 taxes                     ($3,795)  ($5,070)   $5,049   ($8,865)  ($19,733)
  Income tax expense             8       (13)      (11)       (5)       (67)
                          --------  --------  --------  --------  --------- 
Net Income (loss) for the                                                   
 period                     (3,787)   (5,083)    5,038    (8,870)   (19,800)
                                                                            
  Exchange difference on                                                    
   translating foreign                                                      
   operations                   12       (30)        6       (18)       (34)
                          --------  --------  --------  --------  --------- 
Comprehensive income                                                        
 (loss) for the period     ($3,776)  ($5,113)   $5,044   ($8,889)  ($19,834)
                          ========  ========  ========  ========  ========= 
Income (loss) per share                                                     
 attributed to common                                                       
 equity holders                                                             
  Basic                     ($0.07)   ($0.10)    $0.21    ($0.09)    ($1.38)
  Diluted                   ($0.07)   ($0.10)   ($0.05)   ($0.09)    ($1.38)
Weighted average number                                                     
 of common shares                                                           
 outstanding                                                                
  Basic                     51,890    50,352    23,513    93,828     14,384 
  Diluted                   51,890    50,352    47,839    93,828     14,384 
                                                                            
(1) Includes share-based                                                    
 transaction expense of:                                                    
Research and development       106       345       426       451        486 
Selling, general and                                                        
 administrative                460       199       262       659        337 
                          --------  --------  --------  --------  --------- 
                              $566      $544      $688    $1,110       $823 
                          --------  --------  --------  --------  --------- 
                                                                            
                                                                            
                                                                            
                                     As at July    As at April      As at   
Consolidated Balance Sheet Data          31,           30,       January 31,
                                        2014          2014          2014    
                                    --------------------------  ------------
Cash and cash equivalents                $19,826       $19,667       $25,588
Trade accounts receivable                  6,146         7,045         6,959
Inventory                                  4,004         3,321         5,293
Total assets                              41,254        40,706        47,359
                                                                            
Total liabilities                         16,538        12,782        15,048
Shareholders' equity (deficiency)         24,716        27,924        32,311
                                                                            
                                                                            

NON-IFRS FINANCIAL MEASURES

In addition to disclosing results in accordance with IFRS as issued by the International Accounting Standards Board ("IASB"), the Company also provides supplementary non-IFRS financial measures as a method of evaluating the Corporation's performance. These non-IFRS measures are disclosed as a supplement 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 readily apparent solely from IFRS 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 share-based transaction expense, exchange difference related to translating foreign operations and non-recurring or one-time items such as: share offering costs, listing fees, convertible preferred share revaluation adjustment, fair value adjustment on warrant liability, provision for repayable government assistance. Non-IFRS net income (loss) does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other companies. Non-IFRS net income (loss) from operations should not be considered in isolation or as a substitute for comprehensive income (loss) prepared in accordance with IFRS.

ViXS has provided a comparison of comprehensive income (loss) to non-IFRS net loss in the following table:

                                                                            
                                                         Six Month Period   
                         Three Month Period Ended              Ended        
(in thousands of                                                            
 U.S. dollars)        July 31,  April 30,   July 31,    July 31,   July 31, 
                        2014       2014       2013        2014       2013   
                     --------- ---------- -----------  --------- ---------- 
Comprehensive (loss)                                                        
 for the period        ($3,776)   ($5,113)     $5,044    ($8,889)  ($19,834)
R&D adjustments                                                             
  Stock-based                                                               
   compensation                                                             
   expense                 106        345         426        451        486 
  Provision for                                                             
   repayment of                                                             
   government                                                               
   assistance             (294)       111      (2,012)      (405)      (891)
Selling, general and                                                        
 administrative                                                             
  Stock based                                                               
   compensation                                                             
   expense                 460        199         262        659        337 
Other Income/Expense                                                        
 adjustments                                                                
  Listing Fees               -          -       2,432          -      2,742 
  Share offering                                                            
   costs                     -          -                                   
  Fair value                                                                
   adjustment on                                                            
   warranty                                                                 
   liability                 -          -                            18,219 
Other adjustments                                                           
  Convertible                                                               
   preferred share                                                          
   revaluation               -          -      (7,550)               (6,365)
  Exchange                                                                  
   differences on                                                           
   translating                                                              
   foreign                                                                  
   operations              (12)        30          (6)        18         34 
                     --------- ---------- -----------  --------- ---------- 
Non-IFRS net loss      ($3,515)   ($4,429)    ($1,404)   ($8,165)   ($5,272)
                     --------- ---------- -----------  --------- ---------- 
                                                                            

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 Annual Information Form of ViXS Systems, 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.

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 467 patents issued and pending worldwide, numerous industry awards for innovation, and over 31 million media processor shipments to date. ViXS is driving the transition to Ultra HD 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 300 family is ideal for Ultra HD 4K infrastructure equipment, and the XCode 6000 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.

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