March Network Strong Growth Examined

By John Honovich, Published Jun 13, 2011, 08:00pm EDT

March Networks continues a rapid turn around from its struggles over the last few years. At this point, a year ago, March Networks was announcing loses and layoffs. Now, March Networks is announcing another quarter of growth and an extremely robust growth rate at that. In this note, we examine the details of their financial performances and future potential.

Let's examine March's call slides to examine key details:

  • This quarter had 30% growth year over year. Currency impact was negative. In local currency terms, growth was ~35%.
  • Total revenue for the quarter was $27.5 Million CAD
  • Growth was driven by fixed product sales (up 57%) offset by declines in mobile product sales (down 26%)
  • This quarter Wal-Mart sales were 18% of March's total revenues up from 12% a year ago. In dollar terms, Wal-Mart sales were up $2.5 Million CAD.
  • Sales in all regions were up strongly except for Asia which shrunk from $1.5 Million CAD to $1.2 Million CAD. Latin American sales nearly doubled from $1.6 to $3.0 Million CAD.
  • Margins were up substantially from 36% to 48% primarily due to a shift in product mix (less mobile, more fixed products). March also noted that "Manufacturing overhead as % of revenue declined by 7% due to lower costs"
  • March primarily cited banking and retail customers as the major drivers of growth. Over the past few years, March has discussed expansion into Commercial and Industrial. In an email exchange, March said that growth did occur in C&I and that acceleration is expected in 2011 as new products are released. That said, retail and banking seem to be the main drivers of growth currently.
  • March also cited a recent distribution agreement with Scansource. March confirmed that they will continue to to vet, certify and manage dealers directly. They say the goal of using Scansource is to improve operational elements like shipping, inventory management, etc.

These are good results even relative to the general turnaround we have seen with most surveillance incumbents. These are especially impressive in comparison to major rival Verint whose revenue shrank in the same time frame.

Rumors of March for Sale

March also announced that they have retained Morgan Keegan [link no longer available] as an 'independent financial advisor' to 'review a range of potential strategic alternatives available to the company." This has led to rumors / speculation that March Networks is for sale.

While we have no knowledge of any sale, we think logistically it will be difficult for most existing security players to buy March Networks. On the positive side, given their current stock price, the company has a relatively low <1 Price to Sales ratio. The stock is not 'expensive'. However, March Networks is a relatively large and diverse company for the security market. Usually, the big players in security like to buy companies with a single product line and generally for low amounts (generally less than $50 Million). March's market capitalization is ~$100 Million today and we would expect them to want a substantial premium if they agreed to a sale. We would suspect that an outside IT company would be a stronger fit but could not speculate as to who that might be.

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