IDC Recovering from Pico Digital Fallout

IDC Headquarters. Photo: Google Maps screen capture

[Via Satellite 09-09-2015] International Datacasting Corporation (IDC) is on the mend after an agreement for Pico Digital to acquire its broadcast products business fell through. The company’s shareholders rejected the transaction in June, resulting in a series of fees and stunted business opportunities. Though revenues continue to be low, the company is confident of an upswing by its next financial quarter.

IDC’s revenue of CA$1.7 million ($1.3 million) for the second quarter of fiscal year 2016 was 36 percent lower than the second quarter in the year prior. The company attributed this decline to customer hesitation stemming from the proposed asset sale to Pico Digital. Gross profit was CA$251,000 ($190,00) — a 15 percent margin — impacted by a CA$700,000 ($530,00) impairment charge for obsolete and slow-moving inventories mainly for legacy products within the company’s video and audio lines. Excluding this non-cash impairment charge, gross profit was CA$900,000 ($700,000) and margin was 54 percent.

“Q2 was another challenging quarter. While we continue to make significant progress in reducing the company’s overall cost structure and the related cash-burn rate, the revenue level continues to be disappointing, However, we expect this trend to reverse in Q3,” Steve Archambault, executive vice president and CFO of IDC, said Sept. 9 during the company’s Q2 2016 earnings call.

After shareholders nixed the Pico Digital deal, Archambault said IDC incurred CA$118,000 ($89,000) in fees connected to the proposed sale, and paid a $1 million promissory note to Pico Digital from internal funds, causing “significant strain on short-term liquidity.” To mitigate the impact of this promissory note, IDC raised CA$900,000 ($700,000) through the issuance of secured notes via a non-brokered private placement in July, of which senior executives subscribed to 40 percent.

IDC has streamlined its executive team to two Co-CEOs, Chris Barrett and Steeve Huin, and CFO Steve Archambault, following former President and CEO Doug Lowther’s departure in early July. The company’s sales team has changed significantly as well. Overall, IDC has banded together to weather the current financial challenge, agreeing to take a temporary pay cut until conditions stabilize.

“To further reduce payroll costs, we implemented a program in which senior employees, including all executives, voluntarily accepted a 40 percent reduction in salaries in exchange for stock options. This reduction in salary would continue until such time the executive team and the board have concluded that IDC has achieved a minimum level of capital to return to a normal operation. Based on our projections, we believe this program will end during Q3 of fiscal 2016,” said Archambault.

Huin said that, since beginning the third quarter, IDC is already seeing positive momentum on sales. Notably, the company announced a deal this week with Ymagis Group, a European specialist in digital technologies for the motion picture industry, to supply its new software-based Digital Cinema Client. This software-based IDC product enables the delivery of movies and trailers over both satellite and/or terrestrial broadband. Huin said software products hold promise for IDC as the company transitions to offering more of those products. Ymagis intends to deploy IDC’s Digital Cinema Client at most of its 3,300 cinemas across Europe.

Due to the company’s current state, IDC risks being delisted from the Toronto Stock Exchange (TSX) if the company cannot demonstrate that it can meet listing requirements on or before Oct. 5, 2015. Archambault said the company is working closely with TSX on possible solutions, and is considering switching to the TSX Venture Exchange.

Archambault admitted IDC can give no assurance that it can comply with TSX listing requirements within its existing timeframe. Still, the company remains confident that upcoming sales, including an ongoing negotiation for a multi-million dollar Laser MPS opportunity, should right IDC in the near future.

“We are working very hard on a couple of fairly large deals where we are, I would call it the ninth of a baseball game — hence why we are feeling very confident that the revenue will come through in the second half and that will make it easy to achieve profitability,” said Archambault.