SIGNIFICANT EVENTS DURING THIRD QUARTER
Sales
The implementation of the EBU phase-1 network has been completed successfully with nodes in Rome, Geneva, Paris, London, Brussels, Hamburg, Mainz, Washington DC and New York. The network is fully operational and has been used for live transmissions, e.g. from the democratic and republican conventions in the US. TV companies using the services are very impressed by the high quality. The EBU has also expressed its complete satisfaction regarding the performance of the network. Net Insight has continued to deliver new nodes for further expansions into Madrid as well as upgrades of the nodes in Brussels and Washington. This was press released on August 12 but without mentioning the customer's name.
Net Insight has received an add-on order regarding additional Nimbraä nodes from UPC. The add-on order provides increased capacity in the network that will connect a number of European cities. UPC is one of the leading broadband communication and entertainment companies in Europe. UPC is a privately owned subsidiary of UGC Europe Inc.
Net Insight has also received an order from an American media company. Net Insight's equipment will be used for transporting HDTV from initially ten different sports arenas in the US for live events. With this order, the company's current ATM network for transport of HDTV will be replaced.
Furthermore, Net Insight received an add-on order regarding additional Nimbra nodes from the Digital Media Centre (DMC) in Amsterdam. The DMC provides a full range of highly integrated broadcast services for channel production, origination and multi-territory distribution. The order regards an expansion of their current network and the equipment will be used for real-time distribution of sports events to other broadcast operators. The DMC is a business unit of chellomedia, a division of UGC Europe, Inc.
Moreover, Net Insight has received a number of other add-on orders from existing customers in the US and in Europe regarding expansion of current media networks.
Installations and Technical Verifications
At the IBC2004 International Broadcasting Convention in Amsterdam in September, Net Insight introduced the Nimbra 340 multi-service access and switching device designed for the most demanding video and data applications. Applications for the Nimbra 340 include studio production and contribution, and broadcast distribution in CATV, Terrestrial Digital Video Broadcasting (DVB-T) or Triple Play networks. The Nimbra 340 is fully compatible with the larger Nimbra One series of products for central office applications. The new device takes advantage of Net Insight's Next Generation SDH/SONET Nimbra platform that provides the highest bandwidth utilization with the guaranteed 100% QoS required by broadcasters and operators distributing video.
Furthermore, at IBC2004, Net Insight demonstrated solutions for broadcast, DVB-T (Terrestrial Digital Video Broadcasting), HDTV and Triple Play. The Triple Play solution was demonstrated in co-operation with Net Insight's partner Allied Telesyn International, ATI. Furthermore, Net Insight demonstrated a touch screen application built on software from Dimetis which among others is used in the Regionet of Westdeutscher Rundfunk including 14 cities. Net Insight's booth at IBC was very well visited and with a great deal of pre-booked meetings with a lot of European and US customers and potential customers.
Ascent Media Network Services (AMNS), the largest post production company in the US with offices throughout the country, is utilizing Net Insight's Nimbra platform over Broadwing Communications' Media Services Network to provide AMNS' customers with real-time video and data transfers. AMNS uses Net Insight equipment located at AMNS facilities in New York, Minneapolis Los Angeles, and London, as well as the Net Insight equipment installed on the Broadwing network. The purpose of AMNS is to further expand the network to several cities.
Collaboration
During the quarter, Net Insight signed a reseller agreement with Canadian based Geartech. Geartech will sell Net Insight's products to the professional media market mainly in Canada. Furthermore, Swedish based Agama Technologies is a new Net Insight Triple Play partner. Agama develops monitoring systems for surveying IP-TV services to be able to present the current status of the service. This is important for operators to, in a scalable way, be able to survey and trouble shoot the service they deliver to their customers.
SIGNIFICANT EVENTS AFTER THE END OF THE PERIOD
Installations and Technical Verifications
Net Insight is launching a solution for DVB-T (Digital Video Broadcast - Terrestrial) networks that incorporates unique two-way time and frequency transfer functions in its Next Generation SDH/SONET Nimbra platform. These functions provide two-way time and frequency transfer to all nodes in the network with accuracy better than one microsecond, which is within the requirements for DVB-T single frequency networks (SFN). The multicast ASI signals have less than 50 nanoseconds of PCR jitter end-to-end, which synchronizes entire DVB-T multi frequency networks (MFN) and single frequency networks (SFN) directly from the Nimbra platform's network clock.
The new functions can be used to eliminate the need for distributed GPS clocks or as a parallel system for enhanced redundancy and resiliency. This significantly reduces the investment and operational costs for DVB-T networks. The multi-service Nimbra platform incorporates unicast and multicast of ASI, SDI, Ethernet, SDH/PDH streams with SDH/SONET, CWDM, DWDM and dark fiber trunk interfaces. Where other solutions are built on several platforms stacked on top of each other, Net Insight offers a single integrated system that materially reduces CAPEX and OPEX. The cost efficiency is further enhanced by the Nimbra platform's high bandwidth utilization, which can transport up to 147 Mbps of payload over an STM-1 connection, corresponding to less than two percent overhead.
Extra general meeting
The board of Net Insight has decided to call an extra general meeting on October 28 for decision of a new Employee Stock Option Plan ("ESOP"). The board recommends that the extra general meeting makes a decision to accept Net Insight AB 2004 Employee Stock Option Plan and makes a decision to, within ESOP, issue staff options with the possibility to acquire up to 6,700,000 shares series B in Net Insight.
Employee stock options would be offered employees of Net Insight and its subsidiaries. New in this ESOP is that the number of shares that will be possible to acquire with the support of a stock option, is dependent upon fulfillment of certain predefined result and development goals at a specific time, both the result as well as the development goals are decided by the board. For competitor reasons, these goals will not be further communicated.
MARKET PROSPECTS AND FUTURE OUTLOOK
Net Insight's sales during the period totaled SEK 8.2 million, bringing sales for the first nine months of the year to SEK 30.3 million (22.7) which is approximately 33 % higher than the same period last year. The period's sales were mainly attributable to additional orders for the expansion of existing customer installations. These repeat orders from some of the most demanding customers in the world, their long-term buying potential and their satisfaction with the solutions being offered to them, are a good foundation for future acceleration of sales.
As reported earlier, the sales organization has been strengthened. In addition, the efforts to establish major partner collaborations develop positively. The Company firmly believes in increased annual sales compared to 2003. The Company is involved in substantial final contract negotiations and believes that if these result in orders a break-even level can be reached towards the end of the year.
The general market outlook is very positive. The Telco market is again showing positive growth after several years of decrease. Operators who have held back on investments need to upgrade their networks and are looking for new services and new markets to be able to increase their revenues. Triple Play is becoming a well-known business opportunity in many countries and together with other media services becoming market segments that most large operators are evaluating and considering deploying.
Net Insight will participate at the TelcoTV show in Orlando, Florida on November 16-18. TelcoTV focuses on giving telephone operators the tools, resources, contacts and instruction they need for a successful, profitable video deployment. Net Insight will among others show a demo of its Triple Play solution.
EARNINGS TREND
Net sales for the period reached SEK 30.3 million (22.7). Total expenses amounted to SEK 78.5 million (73.6). The operating loss was SEK -60.4 million (-60.2) and the loss after financial items was SEK -59.0 million (-59.5). The operating loss includes depreciation on goodwill amounting to SEK 0.5 million. Net financial items totaled SEK 1.4 million (0.7).
Staff
The total number of employees at the end of the period was 69 (64). The American subsidiary had 5 (5) employees.
Expenses
Total expenses amounted to SEK 78.5 million (73.6). The increase in costs mainly refers to an increase of development spending on core products and the acquisition of Q2 Labs.
Liquidity
Liquid funds at the end of the period totaled SEK 92.7 million (36.5).
Investments
Investments in instruments, equipment and improvements to premises amounted to SEK 0 (0). Development costs have been capitalized in the amount of SEK 10.6 million (6.9) during the period. These are reported as intangible fixed assets.
Parent company
Net sales amounted to SEK 30.3 million (22.7). The loss after financial items amounted to SEK -61.1 million (-65.9). Liquid funds amounted to SEK 91.5 million (36.5). The accumulated tax deficit for business activities in the parent company is estimated at SEK 971.1 million.
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This interim report was compiled on the same accounting principles and calculation bases as for the year 2003. This interim report has not been examined by the company's auditors.
Next report from Net Insight
Year-end report for 2004, February 10, 2005
Additional information - nomination work
In consultation with the company's principal owners, board chairman Lars Berg has started the nomination process in preparation for the Annual General Meeting for 2005. Any proposals regarding the composition of the board can be sent to Lars Berg, Net Insight AB, Box 42093, SE-126 14 Stockholm.
Stockholm, October 27, 2004
Tomas Duffy, CEO, Net Insight AB
For more information, please contact:
Tomas Duffy, CEO, Net Insight AB
Phone +46 8 685 04 00, e-mail: tomas.duffy@netinsight.net
Fredrik Trägårdh, CFO, Net Insight AB
Phone +46 8 685 06 01, e-mail: fredrik.tragardh@netinsight.net
Net Insight AB
Västberga Allé 9
126 40 Stockholm, Sweden
Tel: +46 8 685 04 00
Corp. identity no. 556533-4397
The full report including tables can be downloaded from the following link.
