Financial: Discreet Logic Announces Fiscal First Quarter 1999 Results - Company Financial Information

Edge: Work-Group Computing Report, Nov 2, 1998

Discreet Logic Inc. (NASDAQ NM:DSLGF) Thursday reported results for its fiscal 1999 first quarter. Total revenues for the quarter ended Sept. 30, 1998 were $27.4 million, compared to $38.4 million for the same quarter in fiscal 1998. Net income for the first fiscal quarter ended Sept. 30, 1998 was $1.5 million, or $0.05 per share, compared to net income of $5.9 million, or $0.19 per share, for the same period a year ago, excluding a $21.0 million write-off of purchased in process research and development resulting from the acquisition of D-Vision Systems.

Including this charge, net loss for the 1998 first fiscal quarter was $15.1 million, or $0.53 per share. Richard Szalwinski, Discreet Logic's chairman and CEO, commented, "Several principal factors impacted first quarter performance including: seasonally slower than expected sales in Europe; general market anxiety in North America causing delays in capital spending; recent changes in our sales organization leadership; temporary concerns in the Advanced Systems customer base regarding the acquisition of Discreet by Autodesk (which is expected to close December 1998) which may have led to purchasing delays; and the confusion over DTV (digital television) timing and standards. "Although we were disappointed with the financial results of the quarter, there were many positive events as well," said Szalwinski. "Our New Media products continue to gain momentum, driven primarily by acceptance of our edit NT editing solution, with first quarter revenues growing by almost 50% from the June quarter. We have also been building a high end indirect Advanced Systems channel and, although it is still at an early stage, approximately 40% of our Advanced Systems product revenue was derived from the indirect channel in the first quarter. This is a record level. These results indicate that we are reaching new customers in secondary markets and diversifying from our primary post-production markets. "We intend to further expand our indirect channels to continue to reach more customers," continued Szalwinski. "We also intend to further build our presence in the editing marketplace and to achieve this we recently announced new pricing for our smoke editing system to target a broader spectrum of mid-range facilities with editing budgets from $150,000-$200,000. With our award-winning effects, editing and new media products and expanding distribution channels, I believe we are on the right track to return to revenue and earnings growth." Discreet Logic, named as Canada's third fastest growing company by Profit Magazine, develops advanced systems and new media software used in the creation of digital imagery serving three key markets: visual effects, editing and production. Discreet Logic products are used to develop imagery for video, broadcast, HDTV, the web, new media and feature films, including 1998 Summer blockbusters "Armageddon" and "Godzilla"; and Visual Effects Academy Award winners "Titanic" and "Independence Day". FMI: www.discreet.com.

DISCREET LOGIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands of U.S. dollars, except for share data)
                        June 30,   Sept. 30,
                         1998         1998
                                  (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents               $43,746     $44,035
Accounts receivable (less reserves for
doubtful accounts)                     32,102      27,346
Inventory--
Resale                               7,881      10,187
Demonstration                        4,776       5,287
Other current assets                      4,719       6,411
                         93,224      93,266
Property and equipment--less
accumulated depreciation and
amortization                                 9,576       8,970
Deferred income taxes                            878         752
Other assets                                   6,548       6,405
Assets held for resale                         4,384       4,473
                     $  114,610   $ 113,866
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
expenses                            $   36,099   $  35,102
Deferred revenue                          6,545       6,593
Income taxes payable                      9,883       7,338
Customer deposits                           288         477
                         52,815      49,510
Deferred income taxes                     2,229       2,843
Shareholders' Equity:
Preferred shares--no par value
Authorized--unlimited number of shares
Issued and outstanding--none
Common shares--no par value
Authorized--unlimited number of shares
Issued and outstanding--29,617,504
shares at June 30, 1998 and
29,852,253 at Sept. 30, 1998       106,841     108,163
Accumulated deficit                     (43,251)    (41,716)
Cumulative translation adjustment        (4,024)     (4,934)
Total shareholders' equity          59,566      61,513
                    $   114,610  $  113,866
DISCREET LOGIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands of U.S. Dollars,
except for per share data)
         (Unaudited)
                  Three Months Ended
               Sept. 30,       Sept. 30,
                 1997            1998
Total revenues                      $ 38,405        $ 27,431
Cost of revenues                      17,280          12,759
Gross profit                     21,125          14,672

Operating expenses
Research and development
(net of tax credits)             3,512           3,750
Sales and marketing               7,433           7,914
General and administrative        1,884           2,157
Charge for purchased research
and development                 21,000            --
Total operating expenses        33,829          13,821
Operating income (loss)        (12,704)            851
Other income (expense), net              377           1,547
Income (loss) before income
taxes                          (12,327)          2,398
Provision for income taxes             2,775             863
Net income (loss)              $(15,102)       $  1,535
Earnings (loss) per share:
Basic                          $  (0.53)       $   0.05
Diluted                        $  (0.53)       $   0.05
Weighted average common shares outstanding:
Basic                            28,659          29,681
Diluted                          28,659          30,826