ViXS Reports Second Quarter 2016 Results

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TORONTO, ON --(Marketwired - September 10, 2015) - ViXS Systems Inc. (TSX: VXS), a pioneer and leader in media processing solutions, reported its second quarter results for the period ending July 31, 2015 today. All results are reported under International Financial Reporting Standards ("IFRS") and in U.S. dollars, unless otherwise specified. ViXS reported Q2FY16 revenue of $6.0 million, total comprehensive loss of $(3.0) million and non-IFRS net loss of $(3.6) million.

Q2FY16 Highlights

--Revenue of $6.0 million, down from $10.0 million in the prior quarter.
--Gross margin of 34.3%, a decrease from the prior quarter's level of
47.1%.
--IFRS Comprehensive loss of $(3.0) million, compared to a loss of $(1.8)
million in the prior quarter, but an improvement from a loss of $(3.8)
million last year.
--Non-IFRS net loss of $(3.6) million, compared to a loss of $(2.2)
million in the prior quarter, and a slight improvement from a loss of
$(3.8) million last year.
--$6.6 million of cash and equivalents, including $2.5 million of bank
debt.
--Contributing member of the Secure Content Storage Association, with
public demonstration of VIDITY player and secure content at upcoming IBC
trade show.

"Q2 was a challenging quarter for ViXS. While I'm disappointed in the company's recent financial performance, we are undergoing an important refocusing effort that includes the appointment of a CEO, which we anticipate announcing shortly. Our focus remains returning to profitability through the monetization and commercialization of ViXS' leading technology and products," stated Peter Currie, ViXS' Board Chair.

Q2 FY2016 Results

Revenues for the second quarter of fiscal 2016 totalled $6.0 million, sequentially lower than $10.0 million recognized in the first quarter of fiscal 2016. This decrease was primarily due to quarterly fluctuations and timing of MoCA based products that had higher shipments in Q1, though partially offset by increased sales of our XCode5 and legacy XCode4 products. Revenues decreased by $3.0 million from the same quarter last year, mainly due to lower XCode 6400 sales as first generation Ultra HD TV companion designs came to an end plus lower sales of legacy products and partially offset by higher MoCA sales.

Gross margin for the second quarter of fiscal 2016 was 34.3%, a decrease from the previous quarter's level of 47.1% and a 9.0% point decrease from the second quarter of fiscal 2015. This decrease in margin from the first quarter was primarily due to lower discrete MoCA pricing that took full effect in the quarter, along with additional testing of XCode products and higher amortization costs.

Total operating expenses for the second quarter of fiscal 2016 decreased by $2.1 million to $4.6 million. Research & Development (R&D) spending decreased to $2.7 million compared to $4.1 million in the previous quarter, due primarily to a $0.9 positive non-cash adjustment to the repayable government assistance provision. Selling, general and administrative expenses for the second quarter decreased by $0.7 million compared to previous quarter due to a reduction in stock compensation expense and lower professional services and overhead.

IFRS comprehensive loss for the second quarter of fiscal 2016 was $(3.0) million, or a loss of $(0.06) per share basic and diluted. This is compared to a loss of $(1.8) million in the previous quarter, but despite the lower revenue levels was still a $0.8 million improvement from the $(3.8) million loss in the second quarter of fiscal 2015.

Non-IFRS net loss for the current quarter (as defined in the Non-IFRS Financial Measures section) totalled $(3.6) million, compared to a $(2.2) million loss in the previous quarter and a $0.2 million improvement from the $(3.8) million loss in the second quarter of fiscal 2015. The Non-IFRS loss for the fiscal year to date 2016 was $(5.9) million compared to $(8.7) million in the same period last year. This continued year-over-year improvement in non-IFRS net loss from operations is a result of cost efficiencies and controls we continue to implement in our operations and fluctuations in foreign exchange rates.

As at July 31, 2015, the Company's cash and cash equivalents was $6.6 million including $2.5 million in outstanding bank debt. This decrease in cash was primarily due to lower than expected revenue levels in the quarter, certain working capital cash outlays in support of our continued operations and product development. In addition, the company incurred a one-time payment to a customer to settle an unresolved contract payment rather than litigate.

For More Information

In conjunction with this announcement, ViXS management will be holding a conference call on Thursday September 10, 2015, at 5:00 P.M. Eastern Time to discuss the Company's results for Q2 fiscal 2016.

FISCAL 2Q16 CONFERENCE CALLS DETAILS:

DATE:Thursday September 10, 2015

TIME:5:00 P.M. EDT

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: 860832

WEBCAST: http://public.viavid.com/index.php?id=115957
 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 financial information derived from the Company's unaudited interim condensed consolidated financial statements for the three and six months ended July 31, 2015, April 30, 2015 and July 31, 2014. The selected financial information was prepared in accordance with IAS 34 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
Dollar amounts in U.S.July 31, April 30,July 31, July 31,July 31,
 dollars201520152014 20152014
 ------------------------------ --------------------
Amounts in thousands,
 except loss per share

Revenue $5,974$9,962$8,989$15,936 $16,430
Cost of sales3,927 5,273 5,0959,200 9,400
 ------------------------------ --------------------
Gross margin 2,047 4,689 3,8946,736 7,030
 ------------------------------ --------------------
Operating expenses
Research and
 development 2,698 4,104 3,6556,802 7,910
Selling, general and
 administrative1,923 2,585 4,2554,508 8,501
 ------------------------------ --------------------
Total operating expenses
 (1) 4,621 6,689 7,910 11,31016,411
 ------------------------------ --------------------
Loss before finance costs
 and income, currency
 gains(2,574) (2,000) (4,016)(4,574) (9,381)
 ------------------------------ --------------------
Other income (expense):
Finance costs (155)(92)(37)(247)(57)
Finance income 82222 3046
Currency gains (losses) (274)314 236 40 527
 ------------------------------ --------------------
Total other income
 (expense)(421)244 221 (177)516
 ------------------------------ --------------------
Loss before taxes($2,995)($1,756)($3,795) ($4,751)($8,865)
Income tax recovery
 (expense)(5)(10)8(15) (5)
 ------------------------------ --------------------
Loss for the period (3,000) (1,766) (3,787)(4,766) (8,870)
Other comprehensive
 income (loss)
Item subject to
 reclassification
Exchange difference on
 translating foreign
 operations(13) (5) 12(18)(18)
 ------------------------------ --------------------
Comprehensive loss for
 the period($3,013)($1,771)($3,775) ($4,784)($8,888)
 ============================== ====================
Loss per share attributed
 to common equity holders
Basic ($0.06) ($0.03) ($0.08)($0.09) ($0.18)
Diluted ($0.06) ($0.03) ($0.08)($0.09) ($0.18)
Weighted average number
 of common shares
 outstanding
Basic 50,37750,37650,375 50,37750,375
Diluted 50,37750,37650,375 50,37750,375

(1) Includes share-based
 transaction expense of:
Research and development(130)163 106 33 451
Selling, general and
 administrative 55(214)460 (159)659
 ------------------------------ --------------------
($75) ($51) $566($126) $1,110
 ============================== ====================


BALANCE SHEET

Thousands of US Dollars
 As at
As at July 31,January 31, As at July 31,
 2015 2015 2014
-------------- -------------- --------------

Cash and cash equivalents $6,582$15,289$19,826
Trade accounts receivable2,8534,1046,146
Inventories4,2812,8684,004
-------------- -------------- --------------
Total assets $26,242$35,844$41,254
============== ============== ==============

Trade payables$3,932 $6,465 $6,037
Accrued liabilities3,0136,6566,942
Deferred revenues 72168 55
Total liabilities 11,833 16,525 16,538
-------------- -------------- --------------
Total liabilities and
 shareholders' equity$26,242$35,844$41,254
============== ============== ==============


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 Company'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, unrealized currency gains/losses 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 and 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
July 31, April 30,July 31, July 31,July 31,
201520152014 20152014
 ------------------------------ --------------------
Comprehensive loss for
 the period($3,013)($1,771)($3,775) ($4,784)($8,888)
R&D adjustments
Stock-based
 compensation expense (130)163 106 33 451
Provision for repayment
 of government
 assistance (854) (294)(854) (405)
Selling, general and
 administrative
Stock based
 compensation expense 55(214)460 (159)659
Other Income/Expense
 adjustments
Unrealized currency
 loss (gain) 290(419) (264)(129) (559)
Other adjustments
Exchange differences on
 translating foreign
 operations 13 5 (12)1818
 ------------------------------ --------------------
Non-IFRS net loss($3,639)($2,236)($3,779) ($5,875)($8,724)
 ============================== ====================


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.

Factors that could cause results or events to differ materially from current expectations express or implied by forward looking statements contained herein include, but are not limited to: our history of losses and the risks associated with not achieving or sustaining profitability; the Company's dependence on a limited number of customers for a substantial portion of 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; competitive risks and pressures from further consolidation amongst competitors, customers, and suppliers; market share risks and timing of revenue recognition associated with product transitions; risks associated with changing industry standards such as HEVC (High Efficiency Video Codec), HDR (High Dynamic Range) and Ultra HD resolution; risks related to intellectual property, including third party licensing or patent infringement claims; the loss of any of the Company's key personnel could seriously harm its business; risks associated with adverse economic conditions; delays in the launch of customer products; price re-negotiations by existing customers; the Company's dependence on a limited number of supply chain partners for the manufacture of its products; and other factors discussed in the "Risk Factors" section of the Company's Annual Information Form dated May 7, 2015, a copy of which is available under the Company's profile 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 current date and does not undertake any obligation to update any forward-looking statements contained herein as a result of new information, future events or otherwise except as may be required by applicable securities laws.

About ViXS Systems Inc. ViXS is a pioneer and market leader in designing revolutionary media processing semiconductor solutions for video over IP streaming solutions, with over 516 patents issued and pending worldwide, numerous industry awards for innovation, and over 33 million media processor shipped 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 12 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.

FOR FURTHER INFORMATION PLEASE CONTACT:

For further information, please contact:

Charlie Glavin
ViXS Systems Inc.
T: +1 416 646-2000
cglavin@vixs.com

Investor Relations
ViXS Systems Inc.
T: 1 416 646-2000 ext. 3
Ir@vixs.com