Norsat Reports First Quarter Financial Results - Company Financial Information

Cambridge Telcom Report, May 22, 2000

Norsat International Inc. (NASDAQ:NSATF)(TSE:NII.) Thursday reported financial results for the first quarter ended March 31, 2000.

Sales from continuing operations were $23,015,000, up 130 percent from $10,002,000 a year ago. The increase was primarily attributable to significantly higher sales of DIRECTV systems by Norsat America, Norsat's distribution business. Aggregate sales from the satellite products division combined with the newly established networking divisions approximated those of the year-ago quarter.

As was anticipated, gross margins were lower than the year-ago quarter reflecting the increasing proportion of lower-margin distribution revenues as well as the lower gross margin on those revenues. Operating expenses, however, despite substantial increases in marketing and product development expenses, declined as a percentage of sales reflecting improved company-wide productivity. Product development expenses of $1,210,000 were 49 percent higher than a year ago, and a doubling of marketing expenses were directly related to developing and building the infrastructure required to support new product initiatives in broadband and narrowband satellite networking. The net loss from continuing operations during the quarter was $1,495,000, or $0.06 per share, compared to a loss of $959,000, or $0.05 per share, a year ago. Including discontinued operations, the net loss in 1999 was $1,194,000, or $0.06 per share.

During the quarter, Norsat organized its networking products and services businesses into two new divisions. Norsat Broadband Networks includes satellite broadband access products and Internet I/P solutions, as well as SpectraWorks Inc., which was acquired a few days after the end of the quarter, on April 4, 2000. SpectraWorks is a developer of systems and software for broadcasting multimedia broadband content across satellite, terrestrial wireless and digital cable networks. SpectraWorks' hubs and gateways, combined with Norsat's access terminals, will enable Norsat to provide end-to-end satellite Internet-protocol network solutions. Norsat Narrowband Networks is developing a line of low data rate terminals using Qualcomm's modem technology and the Globalstar satellite constellation, as well as marketing Globalstar USA satellite telephones and airtime.

Robert H. Bucher, President and CEO, commented, "The formation of two new divisions focused on Broadband and Narrowband satellite network technology significantly broadened our target markets. These divisions include products which are fully commercial, exemplified by the two-way Ka-band outdoor units (ODUs) to be supplied to KoreaSat, and SpectraWorks IP-over-DVB systems. Other products from the new divisions are in pre-production or development phases."

Mr. Bucher continued, "Norsat's continuing strategy is to invest in these products as required to achieve a strong and early presence in selected markets. Product development and marketing expenditures will affect Norsat's near-term results. Norsat believes this strategy is the most effective deployment of Norsat's strengths to build shareholder value."

Norsat America's performance benefited from the continuing substantial growth in DIRECTV consumer subscribers, and a strengthened relationship with Hughes Network Services. During the remainder of the year, increasing the volume of higher-margin products, including Hughes' DirecPC, and the pursuing of operational efficiencies are key priorities. The Satellite Products division, which supplies receivers, transmitters, and other ground station equipment for VSAT applications, experienced a softening of orders earlier in the quarter, which returned to expected levels in March.

Mr. Bucher concluded, "While the precise size and shape of the ultimate satellite industry is not yet clear, we believe Norsat has the technology base and the engineering talent to pursue a leadership role as the markets evolve. To succeed in dynamic markets, a firm must be able to anticipate fast-moving trends, and be adaptable and nimble, qualities we reinforced with the organizational changes made over the last quarter. Our focus for the remainder of the year is on milestones evidencing successful execution of our satellite networking growth strategies: development, testing, and commercialization of new products; strengthening existing customer relationships and building new ones; and booking orders."

Norsat International Inc. designs, engineers and distributes premium products for use in the satellite wireless communications industry. It has four principal operating units. Norsat Satellite Products is a supplier of satellite signal receivers, transmitters, and other ground station equipment. Norsat Broadband Networks develops components and systems to the satellite broadband IP market. Norsat Narrowband Networks specializes in voice and data products and services for the Globalstar satellite constellation. The Company's Norsat America Inc. subsidiary operates a network of 14 branch offices across the U.S. and is a distributor of DIRECTV satellite service to the direct-to-home (DTH) market and a DIRECTV Master System Operator (MSO) for the multiple dwelling unit (MDU) market. Norsat America also distributes DirecPC.