Sandvine Incorporated
AIM : SAND
TSX : SVC

Sandvine Incorporated

October 03, 2007 07:00 ET

Sandvine Reports Revenue of $21.2 Million and After-Tax Earnings Per Share of $0.02 in Q3 2007

Company updates annual revenue guidance

WATERLOO, ONTARIO--(Marketwire - Oct. 3, 2007) - Sandvine (TSX:SVC)(AIM:SAND), a leading provider of intelligent broadband network solutions for DSL, FTTH, cable, and wireless carriers, grew third quarter 2007 revenue by 162% to $21.2 million from $8.1 million in Q3 2006. Sandvine grew third quarter net income to $2.7 million (net of the impact of a $2.0 million future tax provision) from $0.2 million in Q3 2006. Diluted earnings per share were $0.020 (including a charge of $0.014 per diluted share attributable to the future tax provision) compared to $0.002 in Q3 2006. Also, based on enhanced visibility into results Sandvine has upgraded its annual guidance. All amounts are in Canadian dollars unless otherwise specified.

"Sandvine has reported another great quarter, fueled by strong demand for our products including the PTS 14000 - our revolutionary platform for inspecting and applying policy on 10-Gigabit Ethernet network traffic," said Dave Caputo, Sandvine's President and CEO. "Service providers' ongoing migration to 10-Gigabit Ethernet plus increasing interest in our type of solutions among Tier 1 telcos and wireless carriers continue to create a great environment for our business over the long term."



FINANCIAL HIGHLIGHTS
Millions of dollars, except per share data and where otherwise indicated
-------------------------------------------------------------------------
Q3 2007 Q3 2006 Change Q2 2007 Change
-------------------------------------------------------------------------
Revenue 21.2 8.1 162% 20.0 6%
Gross Margin percent 74% 74% nil 81% -7 pts
Expenses 12.3 6.3 96% 9.7 27%
Net Income before taxes 4.6 0.2 1873% 7.3 -37%
Net Income 2.7 0.2 1375% 10.3 -74%
Diluted EPS 0.02 0.002 900% 0.079 -75%
-------------------------------------------------------------------------


"We reported record revenue once again and are pleased with Q3 results, overall," stated Scott Hamilton, Sandvine's CFO. "The results reflect a return to more normalized gross margins and the successful, ongoing integration of our two new acquisitions, which we expect will begin to contribute meaningful revenue in 2008."

Revenue for the nine months ended August 31, 2007 increased by 152% to $56.6 million, compared to $22.4 million for the same period in 2006. Net income for the first nine months of fiscal 2007 grew to $18.9 million ($0.143 per diluted share) from a net loss of $0.5 million (loss of $0.005 per diluted share) in the comparable period of 2006.

STRATEGIC UPDATE

Sandvine is in a rapidly growing, emerging market. The Company is focused on increasing its market penetration, both in terms of the number of customers and the number of broadband subscribers they represent. Sandvine now has over 90 customers serving in excess of 50 million broadband subscribers, in over 40 countries worldwide. Thirteen of the top 100 service providers around the world have selected Sandvine's solutions.

During the quarter, Sandvine made significant progress on some of its core strategies:

- Continued investment in sales and marketing : added 7 new customers in the quarter and 6 customers purchased the PTS 14000 for the first time. In total, 20 customers have purchased the PTS 14000 since its launch over a year ago.

- Increased focus on larger customers : won Carphone Warehouse, a Tier 1 DSL service provider, with over 2.4 million broadband subscribers.

- Ongoing evaluation of acquisition opportunities: closed the acquisitions of CableMatrix Technologies, Inc. and Simplicita Software, Inc, two software companies that expand Sandvine's Service Creation and Network Integrity solutions portfolios for broadband service providers.

OUTLOOK

Sandvine has updated its guidance to reflect the impact of Q3 07 revenues and current expectations for Q4 07 revenues. The Company now estimates fiscal 2007 revenues to between $70 million and $75 million (previously $62 million to $67 million), which assumes that certain existing and new customers will continue to adopt and deploy Sandvine's solutions within the fiscal year.

For GAAP purposes, the Company expects its financial results to be fully taxable for the remainder of fiscal 2007. Due to the availability of unused tax losses, deductions and credits, the Company does not expect to pay cash taxes in Canada in respect of its fiscal 2007 earnings.

To review Management's Discussion and Analysis for the quarter, please go to www.sedar.com.

CONFERENCE CALL

The Company will discuss its Q3 2007 results and the business outlook on a conference call at 8:30 a.m. Eastern time (1:30 BST) today. A webcast will also be available from the Investor Relations section of Sandvine's site (http://www.sandvine.com/about_us/investors.asp) where listeners may also download an accompanying slide presentation.



Local dial- in number 416-644-3414
Toll- free North America 800-733-7571
Toll- free United Kingdom 00-800-2288-3501


A replay of the call will be available at 416-640-1917 or toll- free at 877-289-8525 (passcode 21247360#) from approximately 10:30 a.m. Eastern time today through October 10.

ABOUT SANDVINE

Sandvine's award-winning network equipment helps DSL, FTTH, cable, and wireless broadband service providers characterize what is really happening on their networks, enabling polices that improve customer satisfaction, reduce operational costs and increase profitability. Sandvine's DPI-based policy solutions are both application and subscriber-aware, empowering service providers to better manage network traffic congestion, mitigate the proliferation of malicious traffic, and deliver QoS-prioritized multimedia services. With over 90 customers in more than 40 countries, Sandvine is enhancing the Internet experience for millions of broadband users worldwide. www.sandvine.com.

CAUTION REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report which are not historical facts constitute forward- looking statements or forward-looking information within the meaning of applicable securities laws ("forward-looking statements") and are made pursuant to the "safe harbour" provisions of such laws. Statements related to Sandvine's projected revenues, earnings, growth rates, revenue mix and product plans, in particular the statements above under the heading "Outlook", are forward-looking statements as are any statements relating to future events, conditions or circumstances. The use of terms such as "anticipated", "expected", "projected", "targeting", "estimate" and similar terms are intended to assist in identification of these forward-looking statements. Readers are cautioned not to place undue reliance upon any such forward- looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance or achievements of Sandvine to differ materially from the results, performance, achievements or developments expressed or implied by such forward- looking statements. These risks and uncertainties include, without limitation, each of the following:

- The Company's revenues may fluctuate from quarter to quarter and year to year depending upon sales cycles and customer demand;

- The Company's gross margins may fluctuate from period to period depending upon a variety of factors including product mix in the quarter, competitive pricing pressures and the level of sales generated through indirect channels;

- The Company is dependent on a small number of key customers for a large percentage of its revenues;

- The Company faces intense competition in markets where there are typically several different competing technologies and rapid technological changes;

- The Company's growth is dependent on the development of the market for intelligent broadband network management solutions and the decisions of the Company's target customers to deploy and further invest in those technologies; and

- The Company is dependent on its suppliers to ensure continuous supply on terms that allow the Company to fulfill demand, maintain quality and achieve its projected gross margins.

- In addition to the foregoing, since the date of its Annual Information Form, the Company has announced certain acquisitions and may in the future, seek to acquire, additional products or businesses that it believes are complementary to the Company's business plan. Acquisitions involve a number of risks, including: diversion of management's attention from current operations; disruption of the Company's ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired Company's internal controls and procedures.

Sandvine does not undertake any obligation to update forward- looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

Additional risks and uncertainties that relate to an investment in the securities of the Company and which can also impact upon forward- looking information which may be contained in this release can be found in the Company's Annual Information Form and other regulatory filings which are available on SEDAR at www.sedar.com.



Sandvine Corporation
Consolidated Interim Balance Sheets
As at August 31, 2007
(in Canadian dollars, amounts in thousands, except share and
per share data)(unaudited)


August 31 November 30
2007 2006
$ $
Assets

Current assets
Cash and cash equivalents 10,793 19,564
Marketable securities 103,911 37,515
Accounts receivable 12,666 4,421
Other receivables 1,116 1,941
Inventory 13,078 9,625
Prepaid expenses 589 365
Future tax asset 1,075 -
----------------------
143,228 73,431

Non current assets
Capital assets 9,593 6,115
Intangible assets 7,701 -
Goodwill 3,182 -
----------------------
20,476 6,115

163,704 79,546
----------------------
----------------------

Liabilities

Current liabilities
Accounts payable and accrued liabilities 5,243 5,591
Current portion of deferred revenue 9,358 700
Future tax liability 332 -
----------------------
14,933 6,291

Non current liabilities
Deferred revenue 80 88
Future tax liability 1,255 -
Other 325 -
----------------------
1,660 88

16,593 6,379

----------------------
Shareholders' equity

Share capital 145,676 91,247
Contributed surplus 1,079 403
Accumulated other comprehensive income 25 -
Retained earnings (deficit) 331 (18,483)
----------------------
147,111 73,167

163,704 79,546
----------------------
----------------------


Sandvine Corporation
Consolidated Interim Statement of Operations and Retained Earnings
(Deficit)
For the three and nine month period ended August 31, 2007
(in Canadian dollars, amounts in thousands, except share and
per share data)(unaudited)


Three months ended Nine months ended
---------------------------------------------------

August 31 August 31 August 31 August 31
2007 2006 2007 2006
$ $ $ $
Revenue
Product 19,016 7,152 50,371 19,801
Service 2,160 924 6,202 2,618
---------------------------------------------------
21,176 8,076 56,573 22,419

Cost of sales
Product 5,143 1,738 11,055 5,126
Service 377 339 1,091 788
---------------------------------------------------
5,520 2,077 12,146 5,914
---------------------------------------------------
Gross margin 15,656 5,999 44,427 16,505

Expenses
Sales and marketing 4,298 2,320 10,762 6,187
Research and
development 4,788 2,524 11,254 7,756
General and
administrative 1,872 886 4,200 2,727
Stock based
compensation 365 90 769 192
Amortization of
intangible
assets 267 - 267 -
Depreciation 674 440 1,836 1,024
---------------------------------------------------
12,264 6,260 29,088 17,886
---------------------------------------------------
Income (loss) from
operations 3,392 (261) 15,339 (1,381)
Interest and other
income 1,244 496 2,541 952
---------------------------------------------------
Income (loss) before
provision
for
income taxes 4,636 235 17,880 (429)

Provision for
(recovery
of)
income
taxes
Current (35) 52 135 69
Future 1,971 - (1,147) -
---------------------------------------------------
1,936 52 (1,012) 69

---------------------------------------------------
Net income (loss) for
the period 2,700 183 18,892 (498)

(Deficit) - Beginning
of period (2,369) (18,782) (18,483) (18,101)
Transition on adoption
of financial
instruments standards - - (78) -
---------------------------------------------------
Retained earnings
(deficit)
End of period 331 (18,599) 331 (18,599)
---------------------------------------------------
---------------------------------------------------

Earnings (loss) per
Share
Basic 0.021 0.002 0.151 (0.005)
---------------------------------------------------
Diluted 0.020 0.002 0.143 (0.005)
---------------------------------------------------
Basic weighted average
number of
shares outstanding 130,392,708 114,561,616 125,514,727 103,699,214
---------------------------------------------------
---------------------------------------------------
Diluted weighted
average
number of
shares outstanding 137,837,689 121,110,016 132,519,583 103,699,214
---------------------------------------------------
---------------------------------------------------


Sandvine Corporation
Consolidated Interim Statements of Cash Flows
For the three and nine month period ended August 31, 2007
(in Canadian dollars, amounts in thousands, except share and
per share data)(unaudited)


Three months ended Nine months ended
-------------------------------------------
August 31 August 31 August 31 August 31
2007 2006 2007 2006
$ $ $ $

Cash provided by (used in)

Operating activities
Net income (loss) for the
period 2,700 183 18,892 (498)
Items not affecting cash
Amortization of intangible
assets 267 - 267 -
Depreciation 674 440 1,836 1,024
Foreign exchange loss 259 24 267 158
Stock-based compensation 365 90 769 192
Non-cash compensation expense 58 - 58 -
Provision for (recovery of)
future income taxes 1,971 - (1,147) -
Loss on disposal of capital
assets 1 - 52 28
-------------------------------------------

6,295 737 20,994 904

Changes in non-current balances 192 59 (8) 48
Changes in non-cash working
capital balances (392) (2,634) (3,911) (326)
-------------------------------------------

6,095 (1,838) 17,075 626
-------------------------------------------

Investing activities
Purchase of capital assets (1,850) (1,404) (5,270) (3,266)
Business acquisitions, net of
cash acquired (5,030) - (5,030) -
Net sale (purchase) of
marketable securities (42,047) 14,854 (66,371) (31,741)
-------------------------------------------

(48,927) 13,450 (76,671) (35,007)
-------------------------------------------

Financing activity
Proceeds from the issuance of
share capital 50,005 83 50,825 37,437
-------------------------------------------

Net increase (decrease) in
cash during period 7,173 11,695 (8,771) 3,056

Cash and cash equivalents -
Beginning of period 3,620 1,116 19,564 9,755
-------------------------------------------

Cash and cash equivalents -
End of period 10,793 12,811 10,793 12,811
-------------------------------------------
-------------------------------------------

Cash and cash equivalents are
represented by
Balances with banks 713 811 713 811
Cash equivalents 10,080 12,000 10,080 12,000

Contact Information