SIGNIFICANT EVENTS DURING THIRD QUARTER
Sales
Sales for the third quarter increased to SEK 23.1 million compared to SEK 8.2 million the same quarter last year. This is the third consecutive quarter that Net Insight reports the highest sales in the Company's history. Sales for the nine first months reached a level of SEK 66.6 million, an increase of 120% compared to the corresponding period last year. Furthermore, the Company experiences an increase in demand of software, support, service and training which amounts to approximately 10% of total revenue during the first nine months of the year.
In principal all sales are to the professional media industry including the rapidly growing DTT segment (Digital Terrestrial TV) in Europe and the US, with orders both from existing and from new customers. In a number of cases Net Insight is for competitive reasons prohibited by its customers to release their names or order details.
However, significant add-on orders include:
*US based media operator Broadwing that is expanding its current Media Services Network to 41 US cities. This is the second expansion this year to meet growing demand, driven in large part by the 2005-2006 seasons of major sports leagues in the US. Broadwing's media services platform utilizes Net Insight's technology to enable high-speed transport of real-time, contribution-quality video and other file formats for Broadwing's broadcast and other media services customers.
*Broadcast Service Danmark (BSD) for equipment to the Danish digital terrestrial TV (DTT) network providing all of Denmark with TV, following the first order announced in April. A substantial part of the order consisted of Nimbra 340, Net Insight's new access switch especially well suited for digital terrestrial TV networks. With DTT, digital TV signals are transmitted from terrestrial masts to digital TV receivers in the households. Among the benefits are lower operational costs, a higher picture quality and the possibility to transmit up to four times more TV channels on the same frequency range. Broadcast Service Danmark (BSD) is responsible for the analog and digital distribution of TV and radio for all of Denmark.
*Telenor Satellite Services AS, division Telenor Satellite Broadcasting for the expansion of a media network between a number of European locations.
*Swedish Space Corporation for additional equipment to be used for distribution of IPTV as well as for contribution and distribution of professional video.
*A European network operator for a build-out of an international media network for transporting real time critical traffic. The network capacity will be upgraded and more cities and customers will be connected.
Furthermore, Net Insight received an order from one of Germany's largest broadcasters regarding equipment to build a media network between several large German cities. The network has been operational since September.
In addition, Net Insight has during the period received other add-on orders from its world-class customers in Europe and the US mainly within the professional media industry. The add-on orders regard equipment as well as software, support and service.
Partnerships
Net Insight continues to focus on establishing new partnerships. During the quarter, Net Insight entered into a partnership with Simac Broadcast, an international systems integrator specializing in video rich network applications such as broadcast, triple play and digital terrestrial networks. Simac Broadcast is partly founded out of Philips broadcast division and has a large customer base in the EMEA and SE-Asia regions. The partnership enables Simac to provide broadcasters and network operators with complete end-to-end solutions for digital terrestrial television (DTT), triple play and broadcast networks.
Furthermore, Net Insight has entered a reseller agreement with SAV, a French company specialized in designing, engineering and supplying video equipment to the broadcast market. In addition to selling Net Insight's products, SAV will also provide training in using the equipment. Moreover, Net Insight has signed a reseller agreement with Alphatron Asia, a company that markets equipment for broadcast and satellite applications. Alphatron Asia will market Net Insight in Singapore, Malaysia and Indonesia.
Installations and Technical Verifications
Net Insight launched the Nimbra 340-HD (High Definition) switched multi-service access solution for live broadcasts plus studio production and contribution in September. Nimbra 340-HD allows broadcasters to distribute uncompressed HD in a wide range of content services, from Live-HD broadcasting of sports and stadium events to pre-taped studio production and contribution. It handles bandwidths for these applications with unsurpassed flexibility by allocating with strict quality of service, independent of the network load. This results in much higher utilization of the infrastructure without loss of quality of service.
Furthermore in September, Net Insight announced the introduction of a high density 8-port DVB-ASI Transport Access Module that enables digital multimedia transport in broadcast, distribution, and contribution networks. Installed in a Nimbra One or Nimbra 340 switch, the 8x ASI Transport Access Module delivers extremely cost-efficient video transport with guaranteed quality of services properties, in a networked environment. The module is ideal for use in production, post-production and broadcast environments. The 8x ASI Transport Access Module will be ready for delivery during the first quarter of 2006.
Product development
Net Insight continues the development of next generation products, the Nimbra 680 and Nimbra 688. With these products, Net Insight will reach a significantly wider market, geographically as well as with regard to segments and customers. The platforms are also well suited for high capacity networks in current segments and can also increase the sales potential in the segment for core networks. The product Nimbra 680 will be ready for delivery at the end of 2005 and the Nimbra 688 will be ready during the first quarter 2006.
Rights issue
The rights issue approved by the extraordinary general meeting in June was finalized in July and was heavily oversubscribed without utilizing guarantees. The rights issue brought 98.5 MSEK to the company prior to issue costs. Backed by strengthened financials, the Company will be able to increase growth and strengthen its position further.
Organization
On August 1st Net Insight hired Mahmud Noormohamed as Vice President Business Development for North America. Mahmud has more than 20 years of experience within the IT sector. Most recently he was Vice President Solutions at British Telecom North America where he developed new customer accounts and developed and managed strategic partnerships.
Exhibitions and events
In August, Net Insight was represented at the Broadcasting Conference & Celebration of 25th Anniversary of the Tallinn TV-Tower sponsored by Levira, which is Estonia's largest radio broadcaster and it's only TV broadcaster.
Moreover, Net Insight participated with its own stand at the International Broadcasting Convention (IBC) 2005, one of the largest broadcast technology events, in Amsterdam in September. The show covers all the key areas of the electronic media business including audio, cable, film, Internet, production, postproduction, radio, satellite and transmission. Net Insight had a very high activity in the stand with many meetings, both with existing and potential customers.
Net Insight participated at the trade show Telecom Networks in Stockholm together with Kista Science City and as a representative of Kista Broadband Alliance (KBA).
SIGNIFICANT EVENTS AFTER THE END OF THE PERIOD
Sales
Net Insight received an order of equipment for uncompressed HDTV (High Definition TV) from an independent test institute that evaluates new technology for broadcasters in Europe. HDTV is expected to be widely used at live broadcasting of sports and cultural events as well as when producing TV where TV studios in different cities cooperate. This is the first order for the Nimbra 340 with HD-SDI interface, a supplementary product to the current product family, and a product that can receive and transport uncompressed HDTV with maintained quality regardless the size of the network.
Net Insight received an add-on order from a European media operator for the expansion of an international media network to a number of cities in Europe.
Exhibitions and events
Net Insight was represented at the ABU 2005 Digital Television Symposium in Malaysia in the beginning of October. The symposium addresses the challenges of introducing digital TV into the Asia-Pacific region. Net Insight will increase its focus on Asia and plans to participate at several trade shows in Asia the coming year.
Net Insight was also represented at the Mid-America Telecom Showcase & Seminar in Kansas City, US in October. The telecom trade show gathers local and regional telecom operators in the US to showcase and discuss triple play solutions and opportunities.
Net Insight participated together with its new French reseller SAV at the broadcast trade show Satis-expo in Paris in October, where among others Net Insight's new product Nimbra 340 was demonstrated.
Partnerships
Net Insight has signed a reseller agreement with the UK based company MDI that will market Net Insight's products on the cable market in Europe.
MARKET PROSPECTS AND FUTURE OUTLOOK
Sales for the third quarter amounted to SEK 23.1 million, which was slightly above the second quarter sales, and which brings sales for the first nine months to SEK 66.6 million (30.3). Net Insight has received a number of strategic and important orders from customers such as Broadwing, Broadcast Services Denmark and SAVVIS positioning the Company well to continue the momentum into 2006.
Net Insight continues to focus on the prioritized market segments, i.e. the professional media industry, triple play and the metro/core markets. The Company now has a strong foothold in the professional media industry with exceptional customer references in key markets. Furthermore, the analogue switch-off and deregulation drives demand for new digital terrestrial TV networks (DTT) in Europe and Asia.
The outlook for the rest of the year is very good and the Company expects that demand will continue to develop favorably due to the proven competitiveness of the Company's products and increased investments among most target customers. The outlook regarding substantial increase of sales and a significantly improved result for the year remains firm. Additionally, due to new share issue, the Company will strengthen its market and product position further.
Customer driven spending on research and development as well as the development of the Nimbra 340 and the Nimbra 680 will lead to increased development costs during 2005. As a consequence, the overall cost level will thereby be slightly above last year's.
EARNINGS TREND
Net sales for the period reached SEK 66.6 million (30.3). Total expenses amounted to SEK 87.7 million (78.3). The Company continues to maintain a gross margin of approximately 60%. The operating loss was SEK -46.5 million (-60.1) and the loss after financial items was SEK -45.7 million (-58.7). Net financial items totaled SEK 0.8 million (1.4).
Staff
The total number of employees at the end of the period was 74 (69) of which the American subsidiary had 6 (5) employees.
The total number of employees at the end of the period was 74 (69) of which the American subsidiary had 6 (5) employees.
Costs
Total costs amounted to SEK 87.7 million (78.3). The increase in costs mainly refers to an increase of customer driven development spending on core products.
Liquidity
Liquid funds at the end of the period totaled SEK 109.0 million (92.7).
Liquid funds at the end of the period totaled SEK 109.0 million (92.7).
Investments
Investments in instruments, equipment and improvements to premises amounted to SEK 0.3 million (0). Development costs have been capitalized in the amount of SEK 21.7 million (10.6) during the period. These are reported as intangible fixed assets.
Investments in instruments, equipment and improvements to premises amounted to SEK 0.3 million (0). Development costs have been capitalized in the amount of SEK 21.7 million (10.6) during the period. These are reported as intangible fixed assets.
Parent company
Net sales amounted to SEK 91.8 million (30.3). The loss after financial items amounted to SEK -39.8 million (-61.1). Liquid funds amounted to SEK 107.5 million (91.5). The accumulated tax deficit for business activities in the parent company is estimated at SEK 1,058 million. There is no accumulated tax deficit in any subsidiary.
Adjustment to IFRS
Opening balances have been adjusted in accordance with IFRS. As of January 1, 2005 the Company follows International Financial Reporting Standards (IFRS) and the following income statements and balance sheets are in accordance with these standards. This quarterly report is also in accordance with IAS 34.The transition to accounting in accordance with the IFRS rules currently applicable, has changed the Company's accounting principles as follows:
The Company's reported goodwill will no longer constitute a depreciating asset but will be subjected to valuation every time in accordance with IFRS 3 with the aim of assessing its actual value as an asset correctly. To recalculate the balances 2004, depreciation of goodwill amounting to SEK 653 thousand has been resolved and reduced the accumulated deficit. Net income for the quarter includes resolved depreciation of goodwill amounting to SEK 435 thousand.
Two of the Company's outstanding Staff Stock Option Plans are accounted for in accordance with IFRS 2. A third outstanding program was allocated before 7 November 2002 and is not affected by the new rules. The effect after recalculation in accordance with IFRS 2 is an increase in the accumulated deficit amounting to SEK 258 thousand. Net income for the period includes costs of SEK 194 thousand for the employee stock option program. The program involves staff options that offer the opportunity to acquire a maximum of 6,700,000 B-series shares. These have a total term of four years, during which the cost of the program will be dealt with in accordance with IFRS 2, i.e. as the value of the option at the time of allocation.
The above-mentioned effects are the only ones known to the Company at this time and are the ones expected to affect the Company at the end of 2005. However, IFRS is undergoing constant change, which is monitored by the Company, and will result in changes in accounting where applicable. For further details of the effect on the Company's income statements and balance sheets, please refer to Note 1.
This interim report has not been examined by the company's auditors.
Next report from Net Insight
Year-end report for 2005, February 17, 2006
Additional information - nomination work
In consultation with the company's principal owners, board chairman Lars Berg has started the nomination process in preparation for the Annual General Meeting for 2006. Any proposals regarding the composition of the board can be sent to Lars Berg, Net Insight AB, Box 42093, SE-126 14 Stockholm.
Stockholm, October 25, 2005
Tomas Duffy, CEO, Net Insight AB
For more information, please contact:
Tomas Duffy, CEO, Net Insight AB
Phone +46 8 685 04 00, e-mail: tomas.duffy@netinsight.net
Fredrik Trägårdh, CFO, Net Insight AB
Phone +46 8 685 06 01, e-mail: fredrik.tragardh@netinsight.net
Net Insight AB
Västberga Allé 9
126 40 Stockholm, Sweden
Tel: +46 8 685 04 00
Corp. identity no. 556533-4397
The full report including tables can be downloaded from the attached link.
