Earnings call transcript: Vecima Networks Q3 2025 misses EPS expectations

Vecima Networks Inc. reported its fiscal third-quarter earnings for 2025, revealing a notable miss on earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.02, significantly below the expected $0.1461. Revenue also fell short, coming in at $63.98 million against a forecast of $73.87 million. Following the announcement, Vecima’s stock price dropped by 6.63% in pre-market trading, reflecting investor concerns over the earnings miss and future growth prospects. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation, with a "GREAT" overall financial health score of 3.0 out of 5.

Key Takeaways

• Vecima Networks reported a significant EPS miss, with actual EPS at $0.02 versus a forecast of $0.1461.
• Revenue decreased by 10% sequentially and 20% year-over-year, reaching $63.98 million.
• The stock price fell by 6.63% in pre-market trading after the earnings announcement.
• The company reported a gross margin of 47.7% and adjusted EBITDA of $9.4 million.
• Vecima is focusing on product innovation and operational efficiency to counter market challenges.

Company Performance

Vecima Networks faced a challenging quarter, with consolidated sales declining both sequentially and year-over-year. The company attributed part of this downturn to a slowdown in residential cable access upgrades. Despite the revenue dip, Vecima continues to hold a strong position in its market, being recognized as a global leader in remote optical line terminals and remote MAC PHY cable access nodes.

Financial Highlights

• Revenue: $63.98 million, down 10% sequentially and 20% year-over-year.
• Earnings per share: $0.02, significantly below the forecast of $0.1461.
• Gross margin: 47.7%.
• Adjusted EBITDA: $9.4 million.
• Cash position: $1.5 million.
• Quarterly dividend: $0.55 per common share.

Earnings vs. Forecast

Vecima Networks’ actual EPS of $0.02 fell short of the forecasted $0.1461, marking a significant miss. The revenue of $63.98 million also missed the expected $73.87 million. This earnings miss is a departure from previous quarters where the company had managed to meet or exceed expectations, raising concerns about its ability to maintain growth momentum.

Market Reaction

Following the earnings announcement, Vecima’s stock price dropped by 6.63% in pre-market trading. The stock has experienced significant pressure, down nearly 50% over the past year according to InvestingPro data. The shares, which had a 52-week high of $16.89 and a low of $5.98, closed at $7.16 prior to the earnings release. The sharp decline reflects investor disappointment in the company’s financial performance and uncertainty about its future prospects. Despite the recent volatility, the company has maintained dividend payments for 13 consecutive years, demonstrating long-term financial stability.

Outlook & Guidance

Looking ahead, Vecima Networks anticipates continued variability in its Video and Broadband Solutions segment but expects strong performance in Content Delivery and Storage. The company is also focusing on converged, virtualized, and unified solutions to drive future growth. Despite the current challenges, Vecima remains optimistic about its long-term prospects, particularly in the expanding markets for IPTV and OTT streaming services.

Executive Commentary

CEO Sumit Kumar expressed optimism about the company’s future, stating, "We’re genuinely excited about what we see ahead for Vecima, even while contending with some of the continued short-term headwinds." He emphasized the company’s strength in the DAA and IPTV markets and highlighted the interoperability of Vecima’s products as a key advantage.

Risks and Challenges

• Declining residential cable access upgrades could continue to impact revenue.
• Cash position remains low, which might limit investment capabilities.
• Potential tariff impacts could affect manufacturing costs.
• Competition in the broadband market may pressure margins.
• Economic uncertainties could affect customer spending and investment.

Q&A

During the earnings call, analysts inquired about customer visibility and forecast accuracy. Management responded by confirming improved forecast accuracy for calendar 2025, despite the current slowdown in residential cable access upgrades. They also noted that rural broadband subsidies remain robust, supporting the company’s fiber access products.

Full transcript - Vecima Networks Inc. (VCM) Q3 2025:

Conference Moderator, Veseman Networks: Presenting today on behalf of Veseman Networks are Sumit Kumar, President and CEO and Jud Smith, Chief Financial Officer. Today’s call will begin with executive commentary on Veseman’s financial and operational performance for the third quarter fiscal twenty twenty five results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company’s third quarter fiscal twenty twenty five results as well as detailed supplemental investor information are posted on Vesima’s website at www.vesima.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company’s unaudited interim condensed consolidated financial statements and accompanying notes for the three months three and nine months ended March 2024.

Certain statements in this conference call and webcast may constitute forward looking statements within the meaning of applicable securities laws from which WesCEMA’s annual results could differ. Consequently, attendees should not place undue reliance on such forward looking statements. All statements other than statements of historical fact are forward looking statements. These statements include, but are not limited to statements regarding management’s intentions, beliefs or current expectations with respect to market and general economic conditions, future sales and revenue expectations, future costs and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and or are beyond our control.

Sema disclaims any intention or obligation to update or revise any forward looking statements as a result of new information, future events or otherwise, except as required by law. Please review the cautionary language in the company’s third quarter earnings report and press release for fiscal twenty twenty five as well as its annual information form dated 09/19/2024, regarding the various factors, assumptions and risks that could cause actual results to differ. These documents are available on Vesemet’s website at www.vesemet.com under the Investor Relations heading and on SEDAR at www.ciraplus.ca. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks.

Please go ahead.

Sumit Kumar, President and CEO, Veseman Networks: Thank you. Good morning and welcome everyone. Thank you for joining us. The third quarter brought many achievements for Vesma, but three in particular stand out for me. First, we achieved solid growth in EBITDA margins while managing through the interlude we expected this year while customers ready to ramp up of their network evolution programs.

Second, our content delivery and storage segment turned in a very strong quarter with an excellent margin reflecting the strength that yield from our increasingly software driven products portfolio across the business, which leads to the third. We made significant progress on our new Ventra VCMTS solution, which recently culminated in a multi year agreement with Cost Communications. I’ll talk more about these and our other accomplishments on our call today. And Jud will follow with our financial review and then I’ll return to talk about our outlook going forward. Starting with some high level financial results, on a consolidated basis, we achieved a very solid 47.7% gross margin in Q3 along with adjusted EBITDA of $9,400,000 That was despite a moderately lower revenue quarter with consolidated sales of $64,000,000 As we did anticipate, the top line in our Video and Broadband Solutions segment was impacted by customer timing as it relates to network upgrades.

Investment supporting a number of large scale DAA upgrades with customers across multiple markets. Customers are into the finalization phases, but transitions of this scale require system level field qualifications, which can be challenging, particularly for Tier one customers with very large networks and typically a mix of older and newer systems in place. As I said last quarter, our technology is performing exceptionally well through this process, but these are large and complex projects and they do take time. For Bessema, the net effect was a slowing of our entra sales pace in Q3, which in turn tempered revenues for the VBS segment. That was partially offset by continued volume deployments of our new EN9000 gap node platform, which is a foundational product that will eventually house successive generations of our newer software driven access modules.

We’ve now shipped over 20,000 of those nodes since launching earlier this year. We also continue to deploy our EN8400 access nodes during the quarter further expanding our share of the node market. One of the major highlights of the quarter was the progress on our VCMTS solution. The significance of VCMTS lies in its ability to virtualize the traditional hardware based CMTS infrastructure. For operators, this offers much greater flexibility, cost efficiency, scalability, improved performance, as well as the ability to actively orchestrate, manage and monitor their access networks, leveraging cloud native scale.

For Vesima, it’s a natural extension of our leading portfolio in ENTRE and one that gives us access to a newly serviceable market that’s expected to grow to $400,000,000 in the next three years according to Deloro. We made major strides on our lab trials for VCMTS here in Q3. And shortly after the quarter end, Cost Communications signed a multi year agreement to use the Enter VCMTS across its cable network. This is a milestone win that now positions Vesma as a major player amongst a select group of suppliers in the fast growing market for cloud based ECMOs software. Working along with key customers, we also took strides in development of our DOCSIS four point zero solution, which is a critically important offering representing the pathway to next generation multi gig speeds.

We see both VCMTS and DOCSIS four point zero as being key drivers of our future revenue and success. And because VCMTS is entirely software and DOCSIS four point zero is software centric, they’re also positioned to be highly accretive to our margins. On the topic of software based solutions, you’ll recall that our Q2 acquisition Poland based Falcon V brought us two additional software products. Principal core is a platform virtual orchestration technology and TestSuite is an end to end test platform that lets operators significantly speed up and scale their DAA software upgrades, particularly in multi vendor and multi core environments. During the quarter, we made excellent progress with Principal Core as our lead Tier one customer increased their license uptake.

Engagements also continue to grow for test suite. So going forward, we expect both solutions to be strong customer beachheads for our BC MTS and Remote PHY products as well. So a number of definitive strategic milestones in the VBS segment during the quarter. And as these opportunities began to coalesce and the large DAA projects being finalized now start to roll out, we see a lot more to come from our pivotal Entra family of products. Turning to content delivery and storage, the segment turned in excellent performance in Q3, achieving 38% year over year revenue increase, paired with an impressive 70% gross margin.

One of the drivers of that performance was a large upgrade to a Tier one customer’s video on demand infrastructure as we used our media scale solutions to support modernization and unification of that network. While that wasn’t specifically an IPTV contract, the upgrades now give that customer significant new IPTV capabilities and capacity under the hood within their video on demand network. The third quarter also brought a mix of existing new customers undertaking IPTV upgrades and expansions using our media scale platforms, as well as continued deployments of our dynamic ad insertion technology with new customers. Subsequent to quarter end, we had the opportunity to showcase our new keyframe media optimization product at the NEB Show, which has met with broad customer interests. This is the high value solution that offers massive savings and capacity increases for operators And based on interest to date, we believe it’s poised for wide scale adoption.

Before I move on, I want to comment briefly on the 70% gross margin we achieved in the CES segment in Q3. While CES typically turns in strong margins, this is higher than normal and it reflects a larger proportion of software sales in the product mix in the segment. We do expect to return to a more typical product profile in Q4 in CDS, but I mentioned this because it shows what’s possible when the mix becomes more heavily weighted with software solutions. If you think about the new products I’ve been talking about today, you can see this is exactly where Vesem is headed as our solutions become steadily more cloud and software based. Turning now to our Telematics segment.

We achieved another strong quarter as we continue to attract new customers for our asset tracking services. This included a big new win with a single contract of over 1,200 vehicle subscriptions and 28,000 asset tags at a national restoration company. Telematics also achieved a strong gross margin of 65.4% in Q3. While telematics may not be the biggest part of our business, it is a growing recurring revenue business that consistently delivers attractive gross and EBITDA margins and also reflects the innovative DNA of Vesem as a whole. Overall, the quarter yielded a series of achievements for all three of our segments.

So before I turn the call over to Judd, I want to provide a quick update on The U. S. Tariff situation as it relates to Vesemo. As I said before, about 90% of our sales are to The U. S.

And we’re one of the few companies in the market that owns our entire manufacturing process. Currently, we mostly manufacture in Canada and to date we’ve been exempt from tariff actions under the USMCA agreement. That potentially gives us an advantage too over competitors that have more exposure to offshore manufacturing. While we’re currently seeing negligible impact, we’re also of course keeping a close eye on the situation. We’re both diversified and agile when it comes to manufacturing.

If tariffs do start to have more of a potential impact, we’ll assess the best and lowest cost manufacturing strategy and make appropriate adjustments through our proven agility to dynamically pivot the manufacturing location of our products. Now over to Jud to review our financial results. Jud?

Jud Smith, Chief Financial Officer, Veseman Networks: Thanks, Sumit. Good morning. I’ll be reviewing our third quarter fiscal twenty twenty five financial performance in more detail. And for the purposes of this call, I’ll assume that everyone has seen our Q3 fiscal twenty twenty five news release, MD and A and financial statements posted on Vesma’s website. As Sumit has said, we had a strong quarter with solid gross and EBITDA margins despite moderately lower revenues.

Our Q3 fiscal twenty twenty five sales of $64,000,000 were 10% lower on a sequential quarterly basis and 20% lower year over year. The revenue impact was primarily centered in our Video and Broadband Solutions segment, where revenues of $47,700,000 were 20% lower sequentially and 30% lower year over year. As Sumit discussed, we experienced a temporary slowdown in Entra orders as customers continue to prepare for projects and finalize the plans for their next phase of large scale network deployments. The result was Entra DAA sales of $43,500,000 for the quarter, a decrease of 23% sequentially and 29% year over year. As expected, sales of our legacy commercial video products also declined in the quarter, primarily reflecting higher sales of our TC600E platform in the prior year period.

Our Content Delivery and Storage segment had an excellent quarter with revenues growing 38% year over year to $14,100,000 Customer upgrades and expansions as well as service revenues were the key drivers of this growth. Service revenues represented $6,700,000 of the Q3 sales with product sales contributing an additional $7,400,000 So a strong quarter for CDS, but as we continue to note, quarterly variations are normal for this segment and relate to the timing of customer projects and orders. Our Telematics segment also had an excellent quarter with revenues of $2,200,000 reflecting a large customer win, which resulted in an increase in assets and tags monitored. Results also included a onetime accounting adjustment of $200,000 for certain mobile asset tracking products. Gross profit of $30,500,000 for Q3 decreased 21% year over year, but increased 18% sequentially from the $25,900,000 in Q2.

The quarter over quarter gain in gross profit reflects a higher margin VBS product mix and decreased expedited freight cost combined with an increase in higher margin CDS segment sales. We ended the third quarter with a gross margin percentage of 47.7%. This was up significantly from 36.4% in the previous quarter, but slightly lower than the 48.4% we achieved last year. The year over year decrease reflects a change in the product mix, which included lower margin standalone EN9000 VBS product sales, which were offset by the higher sales and margins in the CDS segment due to the significant software sales in the current quarter, as Sumit previously noted. Moving on now to operating expenses, excluding restructuring charges.

Our operating expenses for the third quarter decreased to $27,200,000 from $28,700,000 in the third quarter of fiscal ’twenty four and $28,100,000 last quarter, which has been normalized for a onetime inventory allowance credit during that quarter. The notable changes year over year were as follows: R and D expenses increased $200,000 to $11,500,000 from $11,300,000 Adjusting for deferrals, amortization of deferred development cost and investment tax credit, our actual cash R and D investment increased to $15,200,000 from $14,600,000 last year and as a percentage of revenues increased to 24% from 18% of revenues. Third quarter sales and marketing expenses increased $05,000,000 to $8,200,000 reflecting higher trade show and travel costs. As a percentage of revenue, our sales and marketing expenses increased to 13% from 10% year over year. Third quarter G and A expenses decreased by $1,200,000 to $6,900,000 reflecting lower depreciation expense and decreased salary and wage expenses, partially offset by higher professional fees.

As a percentage of sales, G and A expenses increased slightly to 11% from 10%. Acquisition related costs in the third quarter of fiscal twenty twenty four were $1,400,000 with none in the current fiscal quarter. Additionally, all OpEx categories were impacted by a strengthening of the U. S. Dollar relative to the Canadian dollar year over year.

Savings from our December 2024 reduction in workforce, while being realized, have been partially offset with the timing of other operating expenses in various categories. We still expect to recognize fully loaded cash cost savings of approximately $17,000,000 over an annual period. Now for our bottom line results, we reported third quarter operating income of $3,300,000 compared to $10,100,000 last year. On foreign exchange, we recorded a net foreign exchange gain of $300,000 which compares to a net foreign exchange loss of $1,200,000 in the same period last year. Additionally, foreign exchange gains resulted from a slight change in end of period FX rates from the previous quarter.

Third quarter adjusted EBITDA was $9,400,000 as compared to $17,200,000 last year. Turning now to the balance sheet. We ended the period with $1,500,000 in cash as compared to $2,400,000 at the end of last quarter. Working capital of $60,300,000 decreased from $63,800,000 at the end of Q2, reflecting accounts reflecting lower accounts receivable balances. We note that our working capital balances can be subject to significant swings from quarter to quarter as our product shipments and corresponding materials purchases can be lumpy, reflecting the requirements of our major customers.

Timing issues like contracts with greater than thirty day payment terms can also affect working capital, particularly if shipments are back end weighted for a quarter. However, we anticipate less back end loading of sales exiting fiscal ’twenty five and into fiscal ’twenty six and beyond as we have begun to see more evenly distributed revenues in our quarterly cadence from customer forecasts. Lastly, cash flow used in operations was $4,000,000 in Q3. That compares to 28.6% million dollars of cash flow used in operations during the same period last year. The $24,700,000 improvement reflects a $31,700,000 increase from non cash working capital, partially offset by a $7,000,000 decrease in other operating cash flows.

On a final note, our Board of Directors approved a quarterly dividend of $0.55 per common share payable on 06/23/2025 to shareholders of record as of 05/30/2025. It’s important to note that this dividend can be designated as an eligible dividend for Canadian income tax purposes. As Sumit has said, a very solid quarter and a positive outlook for the remainder of the fiscal year. Now back to Sumit.

Sumit Kumar, President and CEO, Veseman Networks: Thank you, Jud. Looking ahead to the balance of the year, we continue to expect variability in the timing of demand in our BBS segment related to the timing of customer projects. As I mentioned earlier, qualifying very large system upgrades is complex and likely process for operators. On a positive note, once these imminent qualifications are completed, things typically move quickly, but the timing is hard to predict even for customers themselves. The potential for and the impacts of any potential U.

S. Trade actions are also adding uncertainty to our outlook. Currently, we appear to be well positioned in terms of tariffs. But as I said, we’re keeping a close eye on that situation and we’ll adjust as necessary. In the near term and starting with our VBS segment, we expect to see continued volume deployments of our EN 9,000 helping to offset the impact of project timing on other products.

Our new VCMTS agreement is also now in place, although we expect this to be more of a factor in fiscal twenty twenty six and beyond than this year. The same goes for our new Falcon solutions, which are just starting to generate strong revenues. As we discussed last quarter, we’ve tempered our expectation of what we’ll see from the USB program for this year and it is not factored into our forecast for the time being. In the interim, operators are continuing to access funding from the rural digital opportunity fund for fiber to the home, which is driving solid results for our fiber access products. In our content delivery and storage segment, we anticipate another strong revenue quarter to close out the fiscal year supported by existing and new customers IPTV upgrades and expansions as well as the continued rollout of our dynamic ad insertion products.

Added to this, we’re starting to realize early opportunities from the new keyframe technology. Longer term, we continue to see robust future growth potential for CDS as IPTV and OTT streaming services markets continue to expand and the open caching and dynamic advertising growth engines we’ve developed mature. I’ll remind you again that we aren’t expecting as much software contribution in our Q4 CDS results. So margins for the segment will likely be more typical for that segment next quarter. Finally, in our telematics business, we expect to carry on with the strong results and the steady growth as demand for our new removable asset tracking services expands and as we add additional subscriptions from the fleet tracking market.

Overall, as we look forward, we’re genuinely excited about what we see ahead for Vesma, even while contending with some of the continued short term headwinds. The DAA and IPTV markets we’re investing in are areas of substantial growth globally. Vesma is built and enjoys prominent market share in both. Valero Group recently named Vesma the number one global market share leader for remote optical line terminals and remote Mac PHY cable access nodes in 2024. Those are just two examples.

Add to this our deep and growing relationships with some of the world’s largest and most sophisticated operators and broadcasters. Vesima’s market position is exceptionally strong. I also want to point out that while our individual portfolio of cable and fiber access and IPTV solutions gives us many individual pathways to growth, these products also position us strategically as the industry gradually shifts to more converged, more virtualized, more unified solutions, Bessema’s highly interoperable products are designed to work together as part of comprehensive solutions to broadband service providers. For all of these reasons, we’re very confident about Bessema’s future and our ability to continually create strong value for our customers and shareholders. That concludes our formal comments today.

We’d now be happy to take questions. Operator?

Conference Moderator, Veseman Networks: Thank you. We will now begin the question and answer session for analysts and institutional investors. First question comes from Stephen Lee with Raymond James. Please go ahead.

Stephen Lee, Analyst, Raymond James: Thank you. Hey, Sumit. So last time we spoke was mid February, so around mid quarter. But I guess the customer visibility you had wasn’t great given Entrite’s performance in the last month of the quarter. Has that visibility improved at all?

Or are we going into Q4 with kind of the same? Thanks.

Sumit Kumar, President and CEO, Veseman Networks: Hello? Hey, sorry about that, Steve. I had myself muted. Thanks for the question. Yes.

So I think, clearly as we look at how Tier one operators work on their planning cycles, they tend to be on a calendar year budget cycle and that’s taken time to crisp them. But I think what we’re seeing for the balance of calendar twenty twenty five is that visibility and forecasting accuracy has got a coalesced for the rest of the calendar year. So we’re getting, I think, a lot better indication of what we see in store for the company, at least through calendar twenty twenty five on the Enter product line. So overall, yes, I think as when we last spoke in February, we’re still going through that process. But as we stand today, we’ve achieved necessary forecast visibility and we’re looking forward for calendar twenty twenty five.

Stephen Lee, Analyst, Raymond James: Okay. That’s good to hear. Thanks. And can I assume the shortfall of N trial, most of that was on the residential upgrades or the rural fiber upgrades? Maybe you can comment on that.

Thanks.

Sumit Kumar, President and CEO, Veseman Networks: Yes. And good question. I think, yes, the answer is yes. On the residential cable access upgrade, we’ve talked a lot about breaking through to ramping deployment to some of the largest customers, not only for us, but in the entire world and the entire industry that are just finalizing to launch into their markets in the field. So the cable upgrade is part of the headwind that we’re waiting for that timing.

On the other hand, rural broadband subsidies, RDOF program, that deployment has continued to be robust. And in fact, it’s we’ve seen some uptick. You’ve seen that reflected in the mix too with what’s happening with margins and whatnot. So optical products are bigger proportion of Entra family in the third quarter. And we do expect that to continue going forward as well for the next few quarters.

So we’re just awaiting for the floodgate still open on the cable access upgrade. We’re fulfilling EN 9,000 nodes strongly to be prepared for that. And then we’ll expect to see those headwinds abate over time.

Stephen Lee, Analyst, Raymond James: Perfect. Thanks.

Sumit Kumar, President and CEO, Veseman Networks: Thanks, Steven.

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