Final Results
Orca Interactive Ltd
24 March 2006
Orca Interactive Ltd
Preliminary Results
for the year ended 31 December 2005
Ra'anana, Israel, 24 March 2006 - Orca Interactive Ltd ('Orca'), a global leader
in the IPTV middleware market, announces its preliminary results for the year
ended 31 December 2005.
Financial Highlights:
• Revenue of $5.3 million (2004: $5.2 million)
• Gross profit increased by 18.8% to $4.7 million (2004: $3.9 million)
• Gross margin at 87.9% (2004: 75.7%)
• Healthy balance sheet with net cash of $21.3 million at year end
• 3 year order book of $5.8m at year end
Operational Highlights:
• New deals signed with Lucent, Jazztel, a tier one operator in the
Americas, Dansk Bredband, Chunghwa Telecom and one of the world's leading media
companies during the year
• Partnership agreements signed with Lucent, IBM and Tata Consultancy
Services in 2005
• Significant product investment during 2005 - including the launch of
the Home Media application, a new Flash SUI (Subscriber User Interface) and a
Flash based SUI SDK (Software Development Kit) and RiGHTv version 4.5,
introducing an IPTV SDP (Service Delivery Platform) to enable true open platform
capabilities
Haggai Barel, Orca's CEO, said:
'2005 was a year of further significant operational progress for Orca, as we saw
further contract wins, partner agreements and product development. However,
our reported financial performance failed to match our expectations underlining
the nascent nature of the IPTV market and the difficulties we face in accurately
predicting revenues for our business.'
'Even so, we remain confident that we are strongly positioned to benefit from
this market opportunity and our pipeline of opportunities gives us confidence
that we can effectively leverage our leading product and strong market position
over the coming years. To this end, the board believes that expectations for
the year to December 2006 remain a realistic target.'
Enquiries:
Orca Interactive Ltd
Haggai Barel, Chief Executive Officer +972 9 769 9400
Financial Dynamics
James Melville-Ross / Cass Helstrip +44 20 7831 3113
About Orca Interactive
Orca Interactive (LSE: ORCA) is a leading provider of IPTV middleware and
applications for broadband network operators and service providers. Orca enables
triple-play providers to deliver a full array of attractive video-over-IP
services that generate new revenue streams and strengthen customer loyalty.
Leveraging a flexible telco-grade middleware platform, Orca empowers operators
to deliver broadcast TV, video on demand (VOD), personal video recording (PVR),
home media and other compelling interactive services. Orca's SI-enabled
solutions are designed for easy outsourcing of integration services by an
operator's preferred systems integrator. Orca has formed strategic partnerships
with leading players across the IPTV value chain to ensure best-of-breed
solutions with low total cost of ownership. For more information, please visit
www.orcainteractive.com.
Analyst conference call:
A conference call for analysts will be held at 9.30am today. Please use the
following dial-in details:
UK international no: +44 (0)1452 556 640
US number: +1 866 434 1089
Chief Executive's Review
Overview
2005 was a year of further significant operational progress for Orca. During
our first full year as a listed company, we made significant strides in
consolidating our position as one of the leading suppliers of IPTV middleware to
the world's ever-evolving communications market.
New contracts were signed with service providers across all the regions in which
we are active, namely the Americas, EMEA and APAC, and we also saw a number of
blue chip vendors signing up to our partner programme.
One of these Partner agreements, with Lucent, as well as a notable increase in
interest from operators in the North and South American market, encouraged us to
commit resources to address the American market in the middle of the year.
Since then we have seen significant interest for our offering in this region.
Perhaps the most disappointing element of our performance in 2005 was the fact
that we missed our revenue expectations for the year. Whilst it is clear that
there is a very significant market for IPTV, the timing for this market is
uncertain and it remains a challenge to accurately predict our financial
performance going forward. The contract extensions and roll-outs that we had
predicted coming from our existing customers failed to materialise during 2005
and we have become increasingly reliant on new customer wins to support revenue
growth.
Furthermore, reported revenues of $5.3m were below our expectations of
approximately $6.0m, given at the time of our trading update on 30 December
2005. This shortfall in revenues relates to the contract which we announced on
the same date, to supply one of the world's leading media companies with a full
video-on-demand service. At the time of the announcement in December, we
expected to recognise a small portion of the contract's revenues in the 2005
financial year. However, following further consultation with our auditors, it
was yesterday decided that the most appropriate treatment of the revenues was to
defer revenues from 2005. We have therefore taken the step of bringing forward
our preliminary results statement, in order to update the market on this matter.
We enter 2006 with a stronger orderbook than at any time in the Company's
history. I am excited about the opportunities ahead of us as we seek to further
consolidate our position in this rapidly evolving marketplace.
Financial performance
Revenue for the year ended 31 December 2005 was $5.3 million, compared to $5.2
million in 2004. In terms of regional breakdown, 62.4% of our revenues came from
the Americas (2004: 0.7%), 36.5% from Europe & the Middle East (2004: 30.3%) and
1.1% from the Far East (2004: 69.0%). Gross profit for the fiscal year was
$4.7million (2004: $3.9 million), up 18.8%.
Total operating expenses for the year increased by 48.1% to $9.0 million (2004:
$ 6.0 million) as we sought to consolidate our market position through
additional expenditure on sales and marketing, especially in the US, and product
development. Research & Development expenses were $2.6 million (2004: $2.0
million).
Our operating loss therefore increased to $ 4.3 million (2004: $ 2.1 million)
and our net loss increased from $1.9 million in 2004 to $3.5 million in 2005.
This resulted in a net loss per share of $0.10 (2004: $ 0.11 net loss per
share).
Commencing on 1 January 2005, the Company adopted IFRS 2, 'Share Based Payments
'. The effect of the adoption of IFRS 2 on the 12 months ended December 2005 and
2004 is an increase in the employee benefits expenses of $0.3 million and $0.1
million respectively, with a corresponding increase in additional paid-in
capital.
Operating cash outflow during the period was $2.5 million (2004: $0.6 million).
At 31 December 2005, the Company had cash balances of $21.3 million.
As at 31 December 2005, the Company had 79 employees, an increase of 44% over
the end of 2004.
Partnerships
One of the most significant events of 2005 was the signing of the partnership
agreement with Lucent. This deal encouraged us to enter the Americas in June.
We believe that the arrangement provides us a high level of exposure through
Lucent's first class relationships within the American service provider
community, but at the same time, minimizes the investment risk we take in
entering this new market. The current signs are positive.
Partnerships were also initiated during 2005 with IBM and Tata Consultancy
Services ('TCS'). Our global co-marketing agreement with IBM will help Orca to
promote its products in telco tenders worldwide. The arrangement with TCS
enables them to offer worldwide IPTV system integration and service development
over our RiGHTv IPTV middleware.
License deals
We signed a number of licenses during 2005, including deals with service
providers across the three major regions in which we now operate.
As part of our agreement with Lucent, it committed to a multi million dollar
license purchase for Orca's RIGHTv middleware solution on behalf of its
customers.
Equally significant in terms of scale, was the announcement at the year end that
we had signed a $3.0m license deal with a franchise of one of the world's
leading media companies, to become the sole provider to the franchise of a full
video-on-demand service. We believe that this deal has the potential to
generate substantial further revenues over the coming years. In addition, Orca
agreed to acquire a minority stake in the franchise for an investment of $2.5
million.
We also announced smaller license sales with a range of operators during the
year, including Chunghwa Telecom, Jazztel and Dansk Bredband. Chunghwa Telecom
is Taiwan's largest telecom operator with approximately three million ADSL
subscribers.
Our sale to Dansk Bredband, a Danish broadband internet services provider, will
see us provide our middleware to power their proposed IPTV service, which will
initially involve subscribers in the Copenhagen area with planned expansion for
over 100,000 subscribers across Denmark and other parts of Scandinavia within
three years.
Orca also announced on 18 August that it will provide its RiGHTv middleware to
one of Spain's leading telecommunications and broadband providers, Jazztel, as
part of a multi-million Euro deal to allow Jazztel to penetrate the residential
broadband market. Jazztel has more than one million access lines in operation or
54% of the total of lines in Spain.
Product development
2005 saw our highest level of expenditure on R&D as we sought to further stretch
the lead of our technology over that of our competitors. Closing 2005, we
believe that Orca's core RIGHTv middleware remains the most scalable, flexible
and technologically advanced solution on the market.
In June, we announced the launch of Home Media, a digital entertainment
application that brings digital media content from the PC to the TV. Home Media
enables subscribers to view photos and listen to music via the TV, and empowers
IPTV operators to gain a bigger share of the large digital entertainment market.
We also launched a Flash-based SUI (Subscriber User Interface) designed to spur
the evolution from passive TV watching to active on-demand mode and deliver a
new compelling, interactive user experience for the broadband television
industry. Along with the new SUI, Orca released a SUI SDK (Software Development
Kit) for Flash which incorporates Macromedia FlashTM technology for third-party
development of IPTV applications, enabling service providers and system
integrators to build branded, feature-packed TV interfaces that provide an
optimised user experience.
During the year we also launched RiGHTv version 4.5, introducing an evolution of
the middleware's architecture into a Service Delivery Platform (SDP) a service
creation and delivery system for accelerating time to market of interactive TV
applications and services to enable true open platform capabilities.
Board
In June, we announced a further strengthening of our Board with the appointment
of Nina Admoni as a non-executive director of the Company. Nina's career spans
four decades of involvement in the international business community, including
several senior posts that she held in the service of the Israeli government and
on behalf of the United Nations. Recently, she has pursued a career as an
independent business consultant and prior to that served as Executive Director
of the Israel-America Chamber of Commerce & Industry Ltd.
Outlook
The IPTV market is a nascent market and predicting revenues for our business
remains a challenge. Even so, we remain confident that we are strongly
positioned to benefit from this market opportunity and our pipeline of
opportunities gives us confidence that we can effectively leverage our leading
product and strong market position over the coming years.
Given the current level of our orderbook, we believe that our expectations for
2006 remain a realistic target, although we expect the majority of 2006 revenues
to be recognised during the second half of the year.
Haggai Barel, CEO
BALANCE SHEETS
U.S. dollars in thousands, except share data
31 December
2004 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,029 $961
Short-term available-for-sale marketable securities 13,550 6,395
Trade receivables and unbilled accounts 1,335 1,568
Other accounts receivable and prepaid expenses 121 511
Total current assets 25,035 9,435
NON-CURRENT ASSETS:
Long-term available-for-sale marketable securities 1,000 13,938
Severance pay funds 445 578
Property and equipment, net 494 488
Total non-current assets 1,939 15,004
Total assets $26,974 $24,439
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade payables $343 $480
Deferred revenues 15 599
Other accounts payable and accrued expenses 2,477 2,954
Parent company 875 336
Total current liabilities 3,710 4,369
ACCRUED SEVERANCE PAY 687 844
Total liabilities 4,397 5,213
EQUITY:
Share capital:
Ordinary shares of NIS 0.01 par value: Authorized: 55,000,000
shares at 31 December 2004 and 2005, respectively; Issued
and outstanding: 35,323,799 shares and 35,477,299 at
31 December 2004 and 2005, respectively 81 81
Additional paid-in capital 45,425 45,755
Net unrealized loss reserve - (163)
Accumulated deficit (22,929) (26,447)
Total equity 22,577 19,226
Total liabilities and equity $26,974 $24,439
STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except share and per share data
Year ended 31 December
2004 2005
Revenues $5,202 $5,325
Cost of revenues 1,262 643
Gross profit 3,940 4,682
Operating expenses:
Research and development, net 2,039 2,585
Sales and marketing 3,218 4,430
General and administrative 815 1,979
Total operating expenses 6,072 8,994
Operating loss 2,132 4,312
Financial income, net 200 794
Net loss $1,932 $3,518
Basic and diluted net loss per share $0.11 $0.10
Weighted average number of shares used in
computing basic and diluted net loss per share 17,145,648 35,412,746
STATEMENT OF CHANGES IN EQUITY
U.S. dollars in thousands, except share data
Net Total
Additional unrealized recognized
Preferred shares Ordinary shares paid-in loss Accumulated income and
Shares Amount Shares Amount capital reserve deficit Total expenses
equity
Balance as of 1 12,098,327 29 23,900 **) - 3,003 - (20,997) (17,965)
January, 2004
Effect of adopting - - - - 86 - (86) -
IFRS2
Conversion of
convertible loans
from Parent Company
into
Class A Preferred
shares 8,968,643 20 - - 20,286 - - 20,306
Conversion of Class A
Preferred
shares into Ordinary
shares
upon Initial Public
Offering (21,066,970) (49) 21,066,970 49 - - - -
Issuance of Ordinary
shares
upon Initial Public
Offering, net *) - - 14,141,414 32 22,025 - - 22,057
Issuance of shares
upon exercise
of employees' share
options, net - - 91,515 **) - 25 - 25
Net loss - - - - - - (1,846) (1,846) (1,846)
Balance as of 31 - - 35,323,799 81 45,425 - (22,929) 22,577 (1,846)
December 2004
Issuance of shares
upon exercise
of employees' share
options, net - - 153,500 **) - 42 - - 42
Unrealized losses on
available-
for-sale marketable
securities, net - - - - - (163) - (163) (163)
Share-based
compensation - - - - 288 - - 288
Net loss - - - - - - (3,518) (3,518) (3,518)
Balance as of 31
December 2005 - $- 35,477,299 $81 $45,755 $(163) $(26,447) $19,226 (3,681)
*) Net of issuance costs in the amount of approximately $ 3,125.
**) Represents an amount lower than $ 1.
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended 31 December
2004 2005
Cash flows from operating activities:
Net loss $(1,932) $(3,518)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 382 295
Share-based compensation 86 288
Decrease (increase) in trade receivables, unbilled accounts,
other accounts receivables and prepaid expenses 168 (623)
Increase in trade payable and other accounts payable
and accrued expenses 747 431
Increase (decrease) in deferred revenues (55) 584
Increase in accrued severance pay, net 11 24
Net cash used in operating activities (593) (2,519)
Cash flows from investing activities:
Investment in short-term available-for-sale
marketable securities (13,550) -
Investment in long-term available-for-sale
marketable securities (1,000) (14,012)
Proceeds from maturity of short-term available-for-sale
marketable securities - 8,066
Purchase of property and equipment (48) (289)
Net cash used in investing activities (14,598) (6,235)
Cash flows from financing activities:
Refundable grants received from Chief Scientist Office 200 292
Parent Company 875 (539)
Issuance of shares upon exercise of employees'
share options, net 25 42
Issuance of shares upon Initial Public Offering 25,182 -
Issuance expenses (2,561) (109)
Convertible loans from Parent Company 1,396 -
Net cash provided by (used in) financing activities 25,117 (314)
Increase (decrease) in cash and cash equivalents 9,926 (9,068)
Cash and cash equivalents at the beginning of the year 103 10,029
Cash and cash equivalents at the end of the year $10,029 $961
Supplemental disclosure of cash flow activities:
Cash received during the year for:
Interest, net $200 $656
Non-cash activities:
Conversion of convertible loans from Parent
Company into shares $20,306 $-
Issuance expenses payable $564 $-
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