/CNW/ - Axia NetMedia Corporation (Axia or the Corporation) today announced the results for the second quarter of fiscal 2010 for the period ended December 31, 2009.
Art Price, Chairman and CEO commented, During the second quarter of fiscal 2010 we continued to build our businesses and grow our Broadband Services revenues which have generally increased quarter over quarter. However, we are experiencing a slowdown in the growth of our Other Services revenue which we attribute to the current economic environment. This has caused our Other Services revenues to fluctuate significantly as they are driven by network construction, connection and activation activities which vary quarter by quarter.
Operational Highlights
Alberta
Axia continued to generate stable revenues and generate cash flows from its Alberta SuperNet business. Real Broadband(TM) demand grew modestly. Other Services revenue was down as a consequence of delays in proposed extensions and new connections to the Alberta SuperNet.
During the second quarter of fiscal 2010, there was modest growth in Government Customer Bandwidth which grew to 61 Gbps from 59 Gbps. This growth is attributable to the sale of new GigE services in this sector. There have also been increased sales in the municipal sector with five new connections that came online this quarter.
Local access customers are an important component of the Alberta SuperNets future growth and Axia is working closely with these customers to meet their bandwidth requirements as demand by their end users grows. This business represents about 10 percent of the total bandwidth sold by Axia on the Alberta SuperNet. As of December 31, 2009, there were 74 local access customers in 298 communities with an aggregate total of 754 active connections.
Axia is working with its customers to help them take advantage of the evolution of Software as a Service and Cloud Computing technologies both which are enabled by Real Broadband(TM).
France
Covages Next Generation Network (NGN) is comprised of 15 network segments and network deployment, initial market adoption and construction schedules remain on track. Covage completed its national fibre backbone ahead of schedule before the end of calendar year 2009. As at December 31, 2009, Covage had 59 RSPs with 884 broadband connections that consist of 559 bandwidth connections and 325 dark fibre connections. Bandwidth usage grew to 49.0 Gbps at the end of December 2009 as compared to 28.2 Gbps at the end of September 2009. This significant growth is due to the activation of customer connections on the national backbone totalling 17.4 Gbps and on newly activated segments like Sem@for77. As of December 31, 2009, Covages addressable market was approximately 34,000 sites with an estimated market penetration of slightly over 2.5 percent.
The Government of France has announced the creation of a (euro)2.0 billion fund to support the deployment of Fibre to the Home (FTTH) in semi-dense and rural areas. The program is a logical extension to the DSP approach already implemented by Covage. Covage is preparing to submit 15-20 FTTH projects for existing and future DSPs to this fund in the second half of 2010 for a decision in early 2011. During the second quarter, Covage withdrew from one network segment bid as it did not meet its profitability criteria. As of today, Covage has three outstanding bids for regional network segments. Covage does not expect to have any decisions on these bids until the second half of 2010. Covage continues to review all potential opportunities in light of current market conditions and the degree to which the opportunities complement Covages existing assets.
Singapore
Axia owns a 30 percent equity investment in OpenNet which is responsible for providing passive fibre services to every premise in Singapore on Singapores Next Generation National Broadband Network. During fiscal 2010, OpenNet will be focused on the construction of the passive fibre grid. Axias equity share of OpenNets earnings depends on market penetration, and it forecasts its ownership share of pre-tax earnings to be in the range of SGD$6.0 million to SGD$14.0 million per annum post 2015.
Newfoundland and Labrador
On August 7, 2009, Axia announced that the Government of Newfoundland and Labrador had selected Axias proposal in response to the Governments 2008 Request for Proposal to build and manage distinct aspects of its Government Broadband Initiative. Contract negotiations are continuing.
New Opportunities
At the end of January 2010 the Corporation responded to the New Zealand Governments Ultra-Fast Broadband Initiative - Invitation to Participate in the Partner Selection Process (UFB Initiative). The Ministry of Economic Development is in the process of setting up a new Crown-owned investment company, Crown Fibre Holdings Ltd., to manage the New Zealand Governments investment in the UFB Initiative and is currently in the process of short-listing the proposals it has received. Axia continues to evaluate potential opportunities in Asia, Europe, and the United States.
Q2FY2010 Consolidated Financial Information
Consolidated revenue for the quarter was $16.4 million, an increase of $0.2 million or 1 percent from $16.2 million for the prior quarter. Compared to the same six month period last year, consolidated revenue decreased $2.0 million or 6 percent from $34.7 million as a result of decreases in Other Services revenue. Consolidated gross profit for the quarter was $5.6 million or 34 percent of revenue which is a decrease of $0.9 million or 14 percent as compared to $6.6 million or 41 percent of revenue for the prior quarter. As compared to the same six month period last year, gross profit decreased by $3.2 million or 21 percent from $15.4 million or 44 percent of revenue.
Net income for the current quarter was $0.1 million ($0.00 per fully diluted share) as compared to $0.9 million ($0.01 per fully diluted share) for the previous quarter. The net income for the six month period was $1.1 million ($0.02 per fully diluted share) compared to $4.9 million ($0.08 per fully diluted share) for the same period of the prior year. On a segmented basis, the North American business segment produced $2.4 million of net income last quarter, which is consistent with prior results and represents the income attributable to an operational NGN which has a significant recurring Broadband Services revenue base. Conversely, the European business segment had a net loss of $2.0 million, and this is also indicative of an NGN at the early activation stage, where all of the sales, marketing and operating activities for a large NGN are being expensed during the period where market penetration is ramping up. Depreciation and amortization expenses for the six months year to date totalled $4.9 million as compared to $2.3 million for the prior year and reflect the activation of new network segments in France.
As at December 31, 2009, the Corporations working capital was $18.2 million as compared to $11.5 million at June 30, 2009. This net increase of $6.7 million is the net result of the following: (i) an increase in working capital as a result of the planned disposition of a portion of the Corporations interest in a private broadband network company to an institution in France in the first quarter of this fiscal year; (ii) a decrease in working capital as a result of continued network construction in France and in funding the capital requirements of OpenNet in Singapore; and (iii) cash provided by operating activities. As at December 31, 2009, Axia had $32.3 million in cash and unrestricted short-term investments which now exceeds our net capital commitments at that date of $30.4 million.
Outlook
Axias business is based on NGNs that are increasingly seen as critical infrastructure to enable end users to improve their productivity and efficiency. Most of the digital based technology being developed depends on next generation network connectivity. These characteristics are becoming better understood by progressive governments and as a result, next generation network investments are being considered in some jurisdictions as economic stimulus initiatives.
Although the current economic climate appears to be stabilizing, it remains volatile and sectors of the global capital markets are unstable. The Corporation continues to review the level and timing of any future capital commitments for new NGN opportunities and its ability to raise funds on favourable terms prior to making commitments. However, as a consequence of the instability in the capital markets, and the low price of its common stock at this time, the Corporation may decide not to pursue certain NGN opportunities.
Axia will continue to invest business development funds to investigate and assess the best available global opportunities. Axias management and the Board of Directors (Board) assesses the attractiveness of each new opportunity, including the value of momentum and market position, and considers the need for any additional capital required and the cost of such capital from all available sources.
The Corporation intends to maintain its strong balance sheet approach. Management and the Board will consider all these factors as it seeks the path that it believes will maximize longer-term shareholder value.
Conference Call Scheduled
A conference call for the investment community is scheduled to be held Wednesday, February 10, 2010 at 4 p.m. (Eastern) and 2 p.m. (Mountain). Axia Chairman and CEO Art Price, Axia Canada President and Executive Vice-President Murray Sigler, and Chief Financial Officer Peter McKeown will participate. To participate in the conference call, please dial (647) 427-7450 in Toronto and internationally. If you are connecting from other parts of Canada, dial 1-888-231-8191. Please call ten minutes prior to the start of the call. A live webcast (listen only mode) of the conference call will be available at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2951740
A replay of the conference call will be available at (416) 849-0833 or 1-800-642-1687, passcode 54199914 from 6 p.m. (ET) Wednesday, February 10, 2010 to midnight (ET) Wednesday, February 17, 2010, or through the webcast archives at http://www.newswire.ca.
About Axia
The unaudited Consolidated Financial Statements for the quarter ended December 31, 2009 and related Managements Discussion & Analysis have been reviewed and approved by the Corporations Audit Committee and Board of Directors. These reports have been filed on SEDAR at www.sedar.com and also posted at www.axia.com.
Axia sells Real Broadband(TM) and passive services on Next Generation Networks that have implemented the Axia NGN Solution. The Axia NGN Solution has been implemented in Alberta, France and Singapore. Axia trades on the Toronto Stock Exchange under the symbol AXX.
This News Release contains forward-looking statements, including, without limitation, statements containing the words should, believe, anticipate, may, plan, will, continue, intend, expect, estimate and other similar expressions which constitute forward-looking information within the meaning of applicable Canadian securities laws. These statements are based on our current expectations, estimates, forecasts and assumptions about the operating environment, economies and markets in which we operate and are subject to important assumptions, risks and uncertainties that are difficult to predict. Examples of these statements would include those where Axia forecasts its success and timing in winning new NGN business, the timing of completion and estimated total costs of our networks, the revenues and operating costs associated with these networks over time, and Axias ability to generate future cash flows and avail itself of other financing alternatives given current market conditions. The assumptions, risks and uncertainties that could cause actual results to differ materially from the forward-looking information, include, but are not limited to, changes in customer markets, changes in demand for our services, our inability to deliver services in a timely and cost efficient manner, technological change, general economic conditions and other risks detailed from time to time in our ongoing filings with the Canadian securities regulatory authorities, including those in our Annual Information Form, which filings can be found at www.sedar.com. Given these assumptions, risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements either as a result of new information, future events or otherwise.
CONSOLIDATED BALANCE SHEETS
(unaudited) December 31, June 30,
(000s) 2009 2009
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Assets
Current assets:
Cash $ 9,809 $ 10,040
Short-term investments 22,474 14,266
Restricted short-term investments 3,728 4,014
Accounts receivable 17,907 28,083
Prepaid expenses 2,571 2,038
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56,489 58,441
Investment under equity accounting 5,114 3,798
Restricted long-term investments 2,988 2,915
Property and equipment 66,189 69,041
Intangible assets 7,509 8,459
Goodwill 4,201 4,201
Other assets 1,648 1,299
Future income tax asset 5,662 5,147
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$ 149,800 $ 153,301
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Liabilities and Shareholders Equity
Current liabilities:
Accounts payable and accrued liabilities $ 29,915 $ 37,453
Income taxes payable 4,661 4,479
Current portion of deferred revenue 1,855 4,962
Current portion of long-term debt 1,813 -
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38,244 46,894
Deferred revenue 7,784 5,041
Long-term debt 6,278 -
Shareholders equity:
Share capital 48,231 48,111
Contributed surplus 4,259 3,741
Retained earnings 46,040 44,972
Accumulated other comprehensive income
Unrealized gain on short-term investments 74 76
Unrealized gain (loss) on translation of
foreign operations (1,110) 4,466
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45,004 49,514
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97,494 101,366
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$ 149,800 $ 153,301
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CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the three and six months ended December 31, 2009 and 2008 (unaudited)
(000s except per Three Months Six Months
share amounts) 2009 2008 2009 2008
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Revenue $ 16,445 $ 18,893 $ 32,675 $ 34,724
Cost of products and
services sold 10,796 10,905 20,445 19,335
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Gross profit 5,649 7,988 12,230 15,389
Expenses
Marketing 387 372 709 595
Administration 1,391 1,377 2,813 2,207
Business development 1,092 1,568 2,007 3,993
Stock-based compensation 247 190 563 374
Net interest and financing
charges (income) (52) (297) (40) (1,021)
Depreciation and
amortization 2,397 1,366 4,865 2,348
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5,462 4,576 10,917 8,496
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Income before the following 187 3,412 1,313 6,893
Share of loss of equity
investment (63) (236) (110) (236)
Gain on disposal of
investment 46 371 579 371
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Income before income tax 170 3,547 1,782 7,028
Current income tax 908 1,094 1,815 2,617
Future income tax
(reduction) (882) 96 (1,101) (261)
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26 1,190 714 2,356
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Net income before
non-controlling interest 144 2,357 1,068 4,672
Net loss attributable to
non-controlling interest - 93 - 242
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Net income 144 2,450 1,068 4,914
Retained earnings,
beginning of period 45,896 41,450 44,972 38,986
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Retained earnings, end of
period $ 46,040 $ 43,900 $ 46,040 $ 43,900
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Net income per share
Basic $ 0.00 $ 0.04 $ 0.02 $ 0.08
Diluted $ 0.00 $ 0.04 $ 0.02 $ 0.08
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Weighted average shares
outstanding
Basic 63,758 63,593 63,731 63,593
Diluted 63,765 64,154 63,740 64,843
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended December 31, 2009 and 2008 (unaudited)
(000s) 2009 2008 2009 2008
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Net income $ 144 $ 2,450 $ 1,068 $ 4,914
Other comprehensive income,
net of income tax:
Unrealized gains on
short-term investments 25 209 23 234
Transfer losses on sale
of short-term
investments - - (21) (205)
Unrealized gains (losses)
on translation of
foreign operations 3,067 (730) 5,594 (4,890)
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Other comprehensive income
(loss) 3,092 (521) 5,596 (4,861)
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Comprehensive income $ 3,236 $ 1,929 $ 6,664 $ 53
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended December 31, 2009 and 2008 (unaudited)
Three Months Six Months
(000s) 2009 2008 2009 2008
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Cash provided by (used in):
Operating activities:
Net income $ 144 $ 2,450 $ 1,068 $ 4,914
Items not involving cash
Depreciation and
amortization 2,397 1,366 4,865 2,348
Future income tax
(reduction) (882) 96 (1,101) (261)
Share of loss of equity
investment 63 236 110 236
Gain on disposal of
investments (46) (371) (579) (371)
Non-controlling
interest - (93) - (242)
Cost of excess space (17) (14) (31) (25)
Stock-based
compensation 247 190 563 374
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1,906 3,860 4,895 6,973
Changes in non-cash
working capital items 10,176 5,394 8,266 (5,446)
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12,082 9,254 13,161 1,527
Financing activities:
Decrease (increase) in
restricted
investments (546) (12,020) 92 (5,099)
Issue of common shares - - 75 -
Repayment of lease
obligation - (69) - (139)
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(546) (12,089) 167 (5,238)
Investing activities:
Short-term investments (1,950) 2,576 (9,282) 9,149
Business combinations - (2,273) - (2,370)
Reduction in advance
to joint venture - - - 1,785
Increase in bank loan 1,927 - 8,441 -
Increase in equity
investment (1,586) (247) (1,590) (247)
Purchase of property
and equipment (10,102) (1,091) (14,073) (3,170)
Purchase of property
and equipment
included in accounts
payable 4,951 (3,302) 1,631 (2,406)
Disposal of investment - - 7,559 -
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(6,760) (4,337) (7,313) 2,741
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Effect of currency
translation on cash
balances (3,384) 10,861 (6,246) 6,736
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Increase in cash 1,392 3,689 (231) 5,766
Cash, beginning of period 8,417 4,287 10,040 2,210
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Cash, end of period $ 9,809 $ 7,976 $ 9,809 $ 7,976
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%SEDAR: 00002394E
