To the brink and back

Fifteen months, and three CEOs later Enablence Technologies is beginning to step past the shadow of financial ruin. Enablence, an Ottawa based telecommunications firm, has experienced no shortage of radical changes in the past two years.

Insolvency, every company’s worst nightmare, has been a very real possibility over the last 14 months.  During this period the company implemented a dramatic streamlining of operations. Enablence noted, in the MD&A released at the fiscal year’s end this October, that if it had not been able to sell ENA Switzerland – there would have been no Enablence Technologies come 2014. The sale of ENA Switzerland was completed successfully, and Enablence’s $3 million bridge loan was repaid.

This concluded a 15-month financial turnaround, and restructuring process. One part of restructuring process involved $23 million from new equity investment. Another included a retirement of $15 million in secured and non-secured debts.

Now Enablence can continue its operations into the new year, although there is quite a lot of catching up to do.
“In the last 14 months we’ve lost a lot of major customers, but we’re starting to get them back,” said Jacob Sun, Enablence’s new CEO.

Regaining confidence from investors, and consumers, is something that Enablence has been focusing on heavily since before Sun took control. Although at the moment Enablence has only one vendor lined up for 2014, management has not been idle. Sun was in China on business last week, where he began talks with several unnamed Chinese companies.  Likewise Sunblence, Enablence’s 49 per-cent owned joint-venture in China, should turn a profit by the end of the year.

New Technologies

Perhaps the biggest news coming out of China right now is Enablence’s expansion into the data center field. Enablence is already producing 8x10G and 10x10G configurations of Transmit Optical Sub-Assembly (TOSA) and Receive Optical Sub-Assembly (ROSA) systems. These are used to transform an electronic signa, into an optical signal instantly.  The company plans to expand these systems to include 4x10G, 4x25G, and 8x25G configurations, all of which should become available in the coming quarters, according to Sun.

Enablence is a leading supplier for integrated, optical components. It specifically targets the Fiber-to-the-home, metro, and long-haul markets. Patented technology includes the company’s Planar Lightwave Circuit (PLC) technology. PLCs are designed to smoothly integrate multiple optical technologies to make for smoother multiplexing, a process of signal combination used in everything from digital broadcasting to video processing.
The company plans to continue supplying both Tier-1 and Tier-2 system vendors across the world for these markets.

Old Problems

Even with the sale of ENA Switzerland, Enablence is still in a difficult position. Enablence has struggled to attain positive cash flow since its formation out of Pacific Northwest Partners Ltd. in 2006. Although it was initially able to attract numerous interested investors, and an impressible stable of optical R&D tech, the company’s inability to turn positive cash flow has severely hurt it.

Much of this has, at least recently, been attributed to the slow growth of the Asia Pacific market, a demographic Enablence has invested sizable time and effort in cultivating. The company is going to begin focusing on selling high end products to a better profit margin, and accelerate the development of 40G and 100G products, according to Sun.  It plans to be able to use its 40G service in data centers within two to three years, and its 100G service in three to four.

With that said, the company’s continuation hinges on a strong opening into 2014. Confidence in the telecommunications sector has been volatile since the 2007 crash, and the failing of the tech boom in the late ‘90s.

Enablence cannot rely on favourable market conditions

This is going to be make the next year incredibly difficult for Enablence. It has accumulated a deficit of $76 million.  In their annual fiscal report for the year end June 30 Enablence posted losses of $15.16 million. This is almost three times the company’s recorded losses from the previous year. Revenue meanwhile sat at $7.88 million, a decrease of 40 per-cent in contrast to the $13.9 million recorded last year.

Over the past year Enablence has focused on creating more face-to-face meetings with investors and potential partners, according to Sun.  The Asian market has been a focus for Enablence over the past two years. Initial estimates of rapid growth fell short, and the company has suffered as a result.

Fast Fiber, For The Future

The market for fibre-optic networks, such as FTTH, will only continue to increase. Google fibre has been incredibly successful in the United States, and has raised the technological profile of fibre substantially. Based on the 12 month period ending June 30, Enablence has 47 per-cent of its business in the Americas (excluding Central, and Latin America), 35 per-cent in the Asia Pacific region, and 18 per cent in Europe, the Middle-East, and Africa. Some of the losses this year are a result of slowing sales in this last area.

In a report released in August ABI Research, a technology market intelligence firm, predicted that by the end of 2013 19 per-cent of broadband subscribers would use fibre. This represents a 23 per-cent improvement from year end of 2012.

Although this is just one aspect of Enablence’s business, it suggests that there is money to be made in 2014. Sun’s efforts to reignite confidence in the company may very well be the making, or the breaking, of Enablence in 2014.