Vizrt reports Q4 and 2013 results

Strong fourth quarter revenue growth
Annual revenue growth targets achieved
BG backlog is at all time high

Bergen, Norway, February 25, 2014, Vizrt Ltd. (Oslo Main List: VIZ).

Vizrt today reports its financial results for the fourth quarter and the full year 2013. The Company reached a strong Q-o-Q revenue growth of 15% in Q4 and 5% for the full year 2013, fully in line with guidance provided previously. The strong Q4 2013 operational recurring performance was impacted by a number of one-off items, as further explained below. Management believes that non-GAAP adjustments for these one-off items, as provided later in this press release, are useful to investors' understanding and assessment of Vizrt's ongoing core operations and prospects for the future.

Following the divestment of Escenic AS, Vizrt financial results are based on its continuing operations only, BG and MAM. Results related to Escenic are presented in a separate line item as discontinued operations. The statements of income for comparable periods are presented based on the same principles.

FOURTH QUARTER 2013 HIGHLIGHTS

• Revenues of MUSD 33.3, up 15% compared to MUSD 29.1 in Q4 2012.
• The strong Q4 2013 performance triggered an additional accrual of MUSD 1.2 related to variable compensation based on annual targets, as opposed to the MUSD 1.8 reversal of such component in Q4 2012. The tables under "FINANCIAL REVIEW Q4 and FY 2013" below include EBIT and EBITDA comparisons to the adjusted Q4 2012 which excludes the MUSD 1.8 reversal.
• Recurring EBIT[1] of MUSD 6.6, corresponding to a 20% margin, down 10% compared to MUSD 7.4 (25%) in Q4 2012 and up 19% compared to MUSD 5.6 (19%) in adjusted Q4 2012.
• EBITDA of MUSD 7.9, corresponding to a 24% margin, down 10% compared to MUSD 8.8 (30%) in Q4 2012 and up 13% compared to MUSD 7.0 (24%) in adjusted Q4 2012.
• Cash generation from operating activities of MUSD 5.8, up 54% compared to MUSD 3.8 in Q4.
• A non-cash goodwill impairment charge of MUSD 4.9 was recorded as a non-recurring item in operating expenses, following an impairment analysis performed for the MAM cash generating unit.
• BG backlog is at all time high at MUSD 35.4, up 39% compared to the same time LY.

FULL YEAR 2013 HIGHLIGHTS

• Revenues of MUSD 122.4, up 5% compared to MUSD 116.1 in FY 2012.
• Recurring EBIT1 of MUSD 20.4, corresponding to a 17% margin, down 6% compared to MUSD 21.8 (19%) in FY 2012.
• EBITDA of MUSD 24.7 (20%), down 7% compared to MUSD 26.7 (23%) in FY 2012.
• Cash generation from operating activities of MUSD 19.7, up 15% compared to MUSD 17.1 in FY 2012.

ANNUAL BUSINESS HIGHLIGHTS

• Despite challenging market conditions and following a slow start of the year, the company delivered revenue growth in line with its guidance, while maintaining high margins.
• Revenue growth was driven by a number of large new customers, as well as further penetration of the existing customer base.
• Increased focus on our core markets through the expected Mosart acquisition and the divestment of Escenic.
• Gross dividend of MUSD 34.0 was distributed (including related taxes), comprising a MUSD 25.0 special dividend and a MUSD 9.0 normal dividend related to the 2012 results.
• Following the expected Mosart cash based acquisition of approximately MUSD 17.5, which will contribute to future revenue growth and improve profitability as well as value creation, the Board of Directors resolved to approve a gross dividend pay-out of approximately MUSD 3.6, which is in line with the company’s dividend pay-out policy of 1/3-2/3 payout of the annual normalized net profit. Details relating to payout will be released shortly.

ANNUAL PRODUCT DEVELOPMENT HIGHLIGHTS

2013 saw several significant developments in our product offering, strengthening our technology and market leadership position. Installations of all of the following are currently in use by customers for live productions:

• Delivery of a fundamentally new workflow solution for live studio productions. The solution delivers faster live productions, from video and graphics production to multiplatform distribution, while utilizing fewer resources in the process.
• Introduction of a complete IP (stream) production chain, ensuring Vizrt is ready for future productions methods. IP production further increases a customer’s return on investment, as hardware costs are lower than for regular productions. 
• Delivery of the first Viz One "out of the box" MAM system, allowing the move towards a standardized delivery method for Video Management Systems.
• First 4K (4 x higher resolution than High Definition) productions utilizing Viz BG tools, demonstrating our capabilities in this area.
• Breakthrough with new offerings to enhance sports production and on-air analytics. New features allow virtual insertion of the anchor into an arena, insertion of commercials into arenas, and workflow systems that allow for transport of remotely produced content to a TV-station’s facilities. 
• The successful full launch of the Viz Social TV platform, a plug-in which functions with any existing Vizrt platform for the harvesting of social media interactions and delivery of this content on air.
• Several accolades awarded to customers, directly related to their excellent implementation of our technology.

All of the abovementioned items contribute to the strength of our integrated solutions offering platform, making our platform stronger and even more future proof.   

Management summary and outlook

Martin Burkhalter, Vizrt’s CEO, stated: “We recorded a strong Q4 with a double digit revenue growth, while maintaining high recurring operational margins, despite trading conditions in certain southern European markets that continue to be challenging, as well as some significant negative currency fluctuations in APAC and Latin America.”

“We are very encouraged by the strong 25% revenue growth posted in EMEA for H2 2013 compared to H1 2013. I am also pleased with the continued strong performance in the Americas, which recorded 28% revenue growth for the full year.”

“Strong consolidated revenue growth of 16% for the second half of the year combined with a decent second quarter to more than offset the weak performance of Q1 2013, resulting in 5% revenue growth for the full year. This was in line with the guidance we provided in early 2013 and given the trading conditions in Europe earlier in the year, we are pleased with this result.”

“The impact of lengthening decision making cycles, due mainly to economic uncertainties in Europe, has led us to record MUSD 4.9 non-cash goodwill impairment charge related to the MAM cash generating unit. We are confident as ever that our product offering matches current challenges in the industry, and we see our MAM solutions as fundamental in maintaining our market leadership position. In this respect, it is encouraging that we are witnessing clear growth in demand for our more standardized "out of the box" MAM systems.”

”For 2014, we will continue to execute our strategy of delivering innovative products and solutions that improve TV production in every aspect. Our sharp focus on workflow improvements will continue to enhance our customers’ ability to be faster to air, as well as deliver high quality content on multiple platforms, while utilizing fewer resources to do so. This will enable customers to reach larger audiences at lower production costs. We will strive to retain and grow our leadership position as a key strategic partner to our customers in helping them achieve their financial targets. The expected Mosart acquisition is another significant step in this direction, and one that we expect will enable us to offer innovative products and solutions to the market that do not exist today.”

Mr. Burkhalter concluded: “These past six months we have seen a marked improvement in the global business environment, and we expect this trend to continue in 2014. However, we expect that the coming months could still show some weakness in certain European markets, as compared to the years prior to the financial crisis in Europe. . Based on our current performance and backlog, we expect to achieve low double-digit organic revenue growth. We will continue to invest in product innovation and in go to market efforts, especially in emerging markets where we see significant growth opportunities. At the same time we will maintain our financial prudence and discipline.”

SELECTED FINANCIAL INFORMATION (INCLUDING NON GAAP DATA)

* The adjusted Q4 2012 excludes MUSD 1.8 reversal of variable compensation based on annual targets.

** The 2013 recurring EBIT excludes a MUSD 4.9 non-cash goodwill impairment charge related to the MAM cash generating unit, recorded in Q4 2013. The 2012 recurring EBIT excludes MUSD 1.4 revaluation of contingent liability related to the LiberoVision acquisition, recorded in Q4 2012.

*** The adjusted net income from continuing operations excludes the abovementioned items that were excluded from the recurring EBIT calculation, as well as a MUSD 1.3 non-cash impairment charge related to the investment in Stergen, recorded in Q4 2013, and a MUSD 1.8 one-off tax expense recorded in Q3 2013 for the payout of the MUSD 25.0 special dividend.

**** The number of employees as of December 31, 2013 includes 56 employees of Escenic included in discontinuing operations.

Product lines breakdown of revenues

BG and MAM revenues in Q4 2013 accounted for 87% and 13% of total revenues, respectively, as compared to 81% and 19% of total revenues, respectively for Q4 2012.

We are currently in negotiation with a long time BG and MAM customer regarding the discontinuation of a large MAM project, while seeking ways to deliver similar functionalities at a different scope. Our best estimation of the result of such negotiations has led us to record a KUSD 1,363 reversal in Q4 MAM revenues. Adjusted for this reversal, Q4 2013 MAM revenue is KUSD 5,658 (up 4% Q-o-Q) and the FY 2013 MAM revenue is KUSD 22,009 (up 1% Y-o-Y).

Geographic breakdown of revenues

Revenues in EMEA, AMECS and APAC, accounted for 41%, 31% and 28% of the Q4 2013 total revenues, respectively, compared to 44%, 28% and 28%, respectively in Q4 2012.

Adjusted for the KUSD 1,363 reversal explained above, Q4 2013 EMEA revenue is KUSD 15,051 (up 18% Q-o-Q) and the FY 2013 EMEA revenue is KUSD 52,655 (down 5% Y-o-Y).

Recurring operating expenses

Of the MUSD 3.0 increase in OPEX for Q4 2013, as compared to Q4 2012, MUSD 2.5 was accounted for a compensation component based on annual targets. The strong Q4 2013 performance triggered an additional MUSD 0.9 variable compensation expense, as opposed to MUSD 1.4 OPEX reversal of such component for Q4 2012. The table above provides OPEX compared to adjusted Q4 2012 which excludes the reversal of such component.

The increase in OPEX in Q4 2013, compared to adjusted Q4 2012, is mainly the result of the increase in revenue related costs, as well as an increase in employee related costs. Revenue growth allowed for additional recruitments to support the execution of the company’s growth strategy. Q4 2013 OPEX was kept at a level similar to Q3 2013.

Other loss

A non-cash impairment charge of MUSD 1.3 was recorded to fully write-off the investment in Stergen Hi-Tech Ltd. ("Stergen"), as the 3D TV market has not yet materialized. The impairment charge is included in "Equity in losses of an affiliate" in the statement of income.

Currency effects

Exchange rate fluctuations in the USD versus the other main currencies Vizrt deals with (Euro, NOK, SEK) did not materially affect revenues as compared to the revenues reported for Q4 2012.

Order backlog

The order backlog as of February 21, 2014, was MUSD 46.5, up 20% compared to MUSD 38.7 at the same time LY, and up 14% compared to the Q3 2013 results release date. BG backlog is at all-time high at MUSD 35.4 and MAM backlog at MUSD 10.6. BG backlog was up 39% compared to the same time LY, whereas for MAM the backlog was down 18% compared to the same time LY.
The negotiation with the long time BG and MAM customer mentioned under "product line breakdown of revenues" negatively affected the MAM backlog. Backlog comparable numbers were adjusted to exclude the related effect.

Balance sheet, cash flow and liquidity

Cash flow generated from operating activities in Q4 2013 was MUSD 5.8, compared to MUSD 3.8 in Q4 2012.

Vizrt has a strong financial position with no interest-bearing debt and a cash position of MUSD 61.1 as of December 31, 2013 (including MUSD 0.2 short term restricted cash), compared to MUSD 78.9 as of December 31, 2012 (including MUSD 0.6 restricted cash). Adjusted for MUSD 34.0 dividend distributions during 2013 (including taxes), the Company’s cash position increased by MUSD 16.2 compared to December 31, 2012.

Shareholders’ equity as of December 31, 2013 was MUSD 91.0, equivalent to an equity ratio of 67%.

Taxes 

As communicated previously, Vizrt Ltd. is undergoing a tax assessment for the years 2006 through 2010. On January 2, 2014 the Company published an update on the tax assessments received from the Israeli Tax Authorities (the "ITA") for 2008 (approximately MUSD 70.2), and an alternative assessment for 2009 (approximately MUSD 16.1). As stated in this update, the Company believes it has a solid case opposing the ITA claims, and intends to challenge the ITA’s assessment vigorously and defend its positions with respect to all matters raised by the ITA. Consequently, on January 28, 2014, the Company filed an objection detailing its positions. The Q4 2013 tax on income includes ongoing tax provisions, as well as accruals for certain tax positions in all jurisdictions, including Israel.

The 2013 tax on income includes a one-off MUSD 1.8 corporate tax payment related to the special dividend distribution in August 2013.

ANALYST CONFERENCE

An Analyst Conference will be held on February 25, 2014 at 09:30 a.m. (CET) at DNB Head Offices, Dronning Eufemias Gate 30, BJØRVIKA in Oslo.

Management will furthermore discuss the Q4 and FY 2013 results in a conference call at 13.15 p.m. (CET) Call details are as follows:

+47 24 159585 (Norway)

+44 203 1474861 (UK)

+49 69 247501891 (Germany)

A recording of the call will be available at the Company’s website: http://www.vizrt.com/company/presentations/

COMPANY CALENDAR

The results for the first quarter of 2014 will be published on May 9, 2014.

Vizrt Q42013 final Q4 2013 Management presentation

[1]’ The 2013 recurring EBIT excludes a MUSD 4.9 non-cash goodwill impairment charge related to the MAM cash generated unit, recorded in Q4 2013 and a MUSD 1.4 revaluation of contingent liability related to the LiberoVision acquisition, recorded in Q4 2012.

Investor and media contact:

Martin Burkhalter / CEO / 41 22 365 75 01 / MBurkhalter@vizrt.com

Tomer Wald / CFO / 47 5351 8040 / TWald@vizrt.com

Frank Schwarz / Schwarz Financial Communication / 49 611 1745 398 11 schwarz@schwarzfinancial.com

About Vizrt:

Vizrt provides real-time 3D graphics and asset management tools for the broadcast industry - from award-winning animations & maps to online publishing tools. Vizrt's products are used by the world's leading broadcasters and publishing houses, including: CNN, CBS, Fox, the BBC, BSkyB,  Al Jazeera, ITN, ZDF, Star TV, Network 18, TV Today, CCTV, NHK, The Globe and Mail, Times Online, The Telegraph, and Welt Online. Furthermore, many world-class production houses and corporate institutions such as the Stock Exchanges in New York and London use Vizrt systems.

Vizrt is a public company traded on the Oslo Main List: VIZ, ISIN: IL0010838154. For further information please refer to www.vizrt.com

Copyright © Vizrt. All rights reserved. This press release contains forward-looking statements with respect to the business, financial condition and results of operations of Vizrt and its affiliates. These statements are based on the current expectations or beliefs of Vizrt's management and are subject to a number of risks and uncertainties that could cause actual results or performance of the Company to differ materially from those contemplated in such forward-looking statements. These risks and uncertainties relate to changes in technology and market requirements, the company’s concentration on one industry, decline in demand for the company’s products and those of its affiliates, inability to timely develop and introduce new technologies, products and applications, and loss of market share and pressure on pricing resulting from competition, which could cause the actual results or performance of the company to differ materially from those contemplated in such forward-looking statements. Vizrt undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.