Interim Results
Orca Interactive Ltd
19 September 2006
Orca Interactive Ltd
Interim Results
for the six months ended 30 June 2006
Ra'anana, Israel, 19 September 2006 - Orca Interactive Ltd ('Orca'), a global
leader in the IPTV middleware market, announces its results for the six months
ended 30 June 2006.
Financial Performance:
• Revenues of $914,000 (H1 2005: $3.0m)
• Results impacted by current market consolidation and contract delays
• Gross profit margin of 81% (H1 2005: 84%)
• Net loss of $3.4m (H1 2005: $1.3m)
• $0.1 loss per share (H1 2005: $0.04 loss per share)
• Strong net cash position with $18.7m at period end
• 3 year order book increased to $6.7m, from $5.8m at year end
Operational Performance:
• Deals signed with Jazztel in Spain, NewNet Telecoms in Georgia and a
major European telecoms service provider
• Further progress with product development during H1
• Orca's Interactive Alliance gaining momentum
• Strong pipeline of deals
Haggai Barel, Chief Executive Officer of Orca, said:
'Our H1 revenue performance has been very disappointing owing to industry
consolidation and delayed purchasing decisions in the first half of the year.
For these reasons it is also extremely difficult to provide guidance for the
full year. On the one hand our order book and pipeline are both stronger than
ever before. On the other, our experience of the last twelve months has taught
us that the timing of the recognition of revenues cannot be safely predicted.
'Even so, we continue to see an increasing number of telecoms and media
companies preparing to deploy IPTV services and we remain confident that our
product and market position will allow us to play an important role in the IPTV
market over the coming years.'
Enquiries:
Orca Interactive Ltd
Haggai Barel, Chief Executive +972 9 7699400
Financial Dynamics
James Melville-Ross / Matt Dixon +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.
Chief Executive's Review
Overview
When we announced our results for the year ended 31 December 2005 in March 2006,
we explained that, owing to the early stage of the IPTV market, our future
revenue performance would be very difficult to predict. This remains the case
today. We also highlighted that revenues in 2006 were likely to be
significantly second half weighted. Even so, our revenue performance in the
first half of 2006 has been disappointing and a number of factors have
contributed to this performance.
Firstly, we had expected to book additional revenues from one of our major
partners, Lucent, which has been actively involved in pitching for IPTV
mandates. However, owing to its current merger discussions with Alcatel, all
purchase decisions relating to IPTV have been put on hold. Secondly, the first
half of 2006 has seen a period of significant consolidation in the telecoms
industry. As a result, a number of purchasing decisions at prospective
customers, which we had expected to be made in the first half, have been
postponed pending clarity on the outcome of these M&A discussions. Finally, we
had also expected to record revenues from the deal we struck with a franchise of
a leading media company, announced in December last year. These revenues were
not forthcoming in the first six months of 2006 owing to delays in the decision
making process at that leading media company. These delays have meant that it
is not yet clear how much of the revenues we will be able to recognize in the
second half.
Financial performance
Revenues in the first half of the year were $0.9m, compared to $3.0m in the
first half of 2005. Gross margins were broadly stable at 81% (H1 2005: 84%).
Sales and marketing expenditure increased to $2.2m compared to $2m in H1 2005,
as we continued to invest in establishing and building relationships with global
system integrators and network access vendors. Research and development
expenditure increased to $1.6m (H1 2005: $1.3m).
Our operating loss was $3.85m (H1 2005: $1.65m). The net loss increased from
$1.3m to $3.4m resulting in a net loss per share of $0.1 (H1 2005: $0.04 loss
per share).
At 30 June 2006, the Company had cash balances of $18.7m. Operating cash
outflow during the period was $2.65 million (H1 2005: $2.9 million).
Product development
The Company continues to invest in product development in order to maintain its
technology's market leading position.
Orca recently introduced its Product Catalog at the IBC 2006 Conference in
Amsterdam. As part of Orca's Service Delivery Platform (SDP) architecture, the
Product Catalog is an enhanced business management system that extends support
for flexible business models. It is designed to help IPTV operators support new
types of pricing methods for services and innovative bundles, driving industry
growth through enhanced revenue generation and customer loyalty.
Orca's new Interactive Alliance IPTV partner program is gaining momentum with
the addition of eight new companies. This underscores the necessity for tested,
open and interoperable solutions and new partners have joined the Interactive
Alliance in the technology, application, SUI and integration tracks.
Customers and Partners
During the first half of the year, Orca announced that its RiGHTv software had
been commercially launched with Spanish operator Jazztel. Working alongside
Indra, a Spanish systems integrator, Orca's solution was aimed at helping
Jazztel penetrate the residential broadband market. The IPTV service implemented
at the end of 2005 initially offered live television over IP using MPEG-4, and
will include other services in 2006.
Orca also announced an agreement with a Global Next Generation Network (NGN)
equipment vendor for IPTV deployment by a large European telecommunications
service provider. The deal consists of an initial purchase of 50,000 Orca
RiGHTv(TM) middleware licenses and professional services for a triple play
service of IPTV, Video-overIP and broadband Internet access being built by a
large European telecommunications service provider. The IPTV service is
expected to be launched in the second half of 2006 and that the agreement will
be extended to eventually include up to 400,000 end-user middleware licenses.
In April, Orca announced that it was working with systems integrator Telrad
Networks to provide ten large urban areas of the country of Georgia with an IP/
MPLS-based voice, data and video networking system for Georgia's second largest
telecom operator, NewNet Telecommunications ('NewNet'). The new network has been
designed to meet NewNet's growth and capacity requirements for the next 10
years.
Outlook
Accurately forecasting our future revenues remains a very challenging task. We
have a strong pipeline of contract prospects, but the timing of decisions on
these contracts is very difficult to predict given the many changes currently
occurring in our industry. The difficulty in predicting our revenues is further
compounded by the fact that we are currently reliant on new customer wins to
support revenue growth and the contract discussions we are involved in are
mostly large contracts, which amount to a significant proportion of overall
revenue expectations.
For these reasons it is extremely difficult to provide guidance for the full
year. On the one hand our order book and pipeline are both stronger than ever
before. On the other, our experience of the last twelve months has taught us
that the timing of the recognition of revenues cannot be safely predicted.
However, it now appears extremely unlikely that we will be able to achieve
revenue expectations for the full year to 2006, but we continue to believe that
the significant majority of full year revenues will be recognized in the second
half.
Even so, we continue to see an increasing number of telecoms and media companies
preparing to deploy IPTV services. Furthermore we continue to receive positive
feedback from partners and customers about our RiGHTv products and we remain
confident that our product and market position will allow us to play an
important role in the IPTV market over the coming years.
Haggai Barel
Chief Executive Officer
19 September 2006
BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
31 December 30 June
2005 2006
Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $961 $1,502
Short term available-for-sale-marketable securities 6,395 5,887
Trade receivables 1,568 645
Other accounts receivable and prepaid expenses 511 625
Inventory - 181
Total current assets 9,435 8,840
NON-CURRENT ASSETS:
Long-term available-for-sale marketable securities 13,938 11,346
Severance pay funds 578 694
Property and equipment, net 488 472
Total non-current assets 15,004 12,512
Total assets $24,439 $21,352
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Trade payables $480 $533
Deferred revenues 599 675
Employee and payroll accruals 1,155 1,196
Accrued expenses and other liabilities 1,799 1,289
Parent company 336 710
Total current liabilities 4,369 4,403
Severance pay liability 844 1,049
Total liabilities 5,213 5,452
EQUITY:
Share capital:
Ordinary shares of NIS 0.01 par value: Authorized:
55,000,000 shares at 31 December 2005 and 30 June 2006;
Issued and outstanding: 35,477,299 and 35,538,299 shares at
31 December 2005 and 30 June 2006, respectively 81 82
Additional paid-in capital 45,755 45,867
Net unrealized loss reserve (163) (222)
Accumulated deficit (26,447) (29,827)
Total equity 19,226 15,900
$24,439 $21,352
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF INCOME
U.S. dollars in thousands, except share and per share data
Year ended Six months ended
31 December, 30 June,
2005 2005 2006
Unaudited
Revenues $5,325 $3,022 $914
Cost of revenues 643 477 172
Gross profit 4,682 2,545 742
Operating expenses:
Research and development, net 2,585 1,286 1,632
Sales and marketing 4,430 2,012 2,163
General and administrative 1,979 901 799
Total operating expenses 8,994 4,199 4,594
Operating loss 4,312 1,654 3,852
Financial income, net 794 351 472
Net loss $3,518 $1,303 $3,380
Basic and diluted net loss per share $0.10 $0.04 $0.10
Weighted average number of shares used in
computing basic and diluted net loss per share 35,412,746 35,351,187 35,430,294
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CHANGES IN EQUITY
U.S. dollars in thousands, except share data
Total
Additional Net recognized
Ordinary shares paid-in unrealized Accumulated income and
Shares Amount capital loss reserve deficit Total expenses
Balance as of 1 January 35,323,799 $81 $45,425 $- $(22,929) $22,577 $-
2005
Issuance of shares upon
exercise of 153,500 *)- 42 - - 42 -
employees' share options, net
Unrealized losses on
available-for- - - - (163) - (163) (163)
sale marketable securities
Share-based compensation - - 288 - - 288 -
Net loss - - - - (3,518) (3,518) (3,518)
Balance as of 31 December 35,477,299 81 45,755 (163) (26,447) 19,226 $(3,681)
2005
Issuance of shares upon -
exercise of 61,000 1 16 - - 17
employees' share options, net
Unrealized losses on
available-for- - - - (59) - (59) (59)
sale marketable securities
Share-based compensation - - 96 - - 96 -
Net loss - - - - (3,380) (3,380) (3,380)
Balance as of 30 June 2006
(unaudited) 35,538,299 $82 $45,867 $(222) $(29,827) $15,900 $(3,439)
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended Six months ended
31 December 30 June
2005 2005 2006
Unaudited
Cash flows from operating activities:
Net loss $(3,518) $(1,303) $(3,380)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 295 143 148
Share-based compensation 288 138 96
Amortization of marketable securities premiums 92 32 41
Decrease (increase) in trade receivables, other accounts receivables and
prepaid expenses (623) (2,507) 809
Increase (decrease) in trade payables, employees and payroll accruals and
accrued expenses and other liabilities 431 348 (350)
Increase in inventory - - (181)
Increase in deferred revenues 584 215 76
Increase in accrued severance pay, net 24 35 89
Net cash used in operating activities (2,427) (2,899) (2,652)
Cash flows from investing activities:
Investment in long-term available-for-sale marketable securities (14,104) (11,106) -
Proceeds from maturity of short-term available-for-sale marketable 8,066 6,438 3,000
securities
Purchase of property and equipment (289) (137) (132)
Net cash provided by (used in) investing activities (6,327) (4,805) 2,868
Cash flows from financing activities:
Refundable grants received from the Chief Scientist Office 292 - -
Royalties paid to Chief Scientist Office - - (66)
Parent Company, net (539) (441) 374
Issuance of shares upon exercise of employees' share options, net 42 24 17
Issuance expenses (109) (109) -
Net cash provided by (used in) financing activities (314) (526) 325
Increase (decrease) in cash and cash equivalents (9,068) (8,230) 541
Cash and cash equivalents at the beginning of the period 10,029 10,029 961
Cash and cash equivalents at the end of the period $961 $1,799 $1,502
Supplemental disclosure of cash flows activities:
Cash received during the period for:
Interest $656 $261 $430
The accompanying notes are an integral part of the financial statements.
NOTE 1:- GENERAL
a. Orca Interactive Ltd. ('the Company') was incorporated in Israel and
commenced operations in August 1995. The Company is headquartered in
Ra'anana, Israel. In April 2000, the Company was acquired by Emblaze Ltd.
('the Parent Company'), a company organized under the laws of the State of
Israel and traded on the London Stock Exchange. In October 2004, the Company
completed an Initial Public Offering ('IPO') on the London Stock Exchanges
Alternative Investment Market ('AIM'). The Company issued 14,141,414
Ordinary shares to institutional and other investors at a price of $1.8 per
share, raising amount of approximately $ 25,200 before issuance expenses.
b. The Company develops and licenses software for the provision of
television and other entertainment services over IP network infrastructures.
NOTE 2:- BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The interim condensed financial statements do not include all the information
and disclosures required in the annual financial statements, and should be read
in conjunction with the Company's annual financial statements as at 31 December
2005.
The accounting policies adopted in the preparation of the interim condensed
financial statements are consistent with those followed in the preparation of
the Company's annual financial statements for the year ended 31 December 2005,
except for the adoption of the following amendments mandatory for annual periods
beginning on or after 1 January 2006:
• IAS 39 Financial Instruments: Recognition and Measurement ('IAS 39') -
Amendment for financial guarantee contracts;
• IAS 39 - Amendment for hedges of forecast intragroup transactions;
• IAS 39 - Amendment for the fair value option.
The adoption of these amendments did not affect the Company results of
operations or financial position.
Inventory balance consists of costs of finished products and is calculated using
the 'first-in, first-out' method.
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