Sandvine Incorporated
AIM : SAND
TSX : SVC

Sandvine Incorporated

April 06, 2011 07:00 ET

Sandvine Reports Q1 2011 Results

WATERLOO, ONTARIO--(Marketwire - April 6, 2011) - Sandvine, (TSX:SVC)(AIM:SAND) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $19.2 million and a GAAP loss of $2.7 million (non-GAAP(1): $1.9 million loss) for its first quarter of 2011. All results are reported in U.S. dollars.

"Since last quarter Sandvine has continued to expand the role we play in broadband networks," said Dave Caputo, Sandvine's President and Chief Executive Officer. "Our new Policy Traffic Switch 22000 platform is ideal for network edge deployments, where there are unique opportunities to help service providers manage traffic to increase revenue opportunities and run their networks more efficiently. Also, our new joint solution with Citrix gives mobile operators an excellent tool to enhance subscribers' quality of experience, reduce traffic in the busy mobile packet core network and create innovative new data roaming plans."

For the first quarter, approximately 59% of the Company's revenue was derived from the DSL access market, 19% from the mobile access market and 22% from cable network operators. During the first quarter, approximately 71% of total revenues came from outside North America and 64% of the Company's revenue was earned through reseller partners.

FINANCIAL HIGHLIGHTS (All amounts are in U.S. dollars)
Millions of dollars, except per share data and where otherwise indicated Q1
2011
  Q1
2010
 
Change
  Q4
2010
 
Change
 
Revenue 19.2   20.7   -7 % 24.2   -20 %
Gross Margin percent 71 % 75 % -4pp   72 % -1pp  
R&D, SG&A 14.3   12.9   10 % 14.7   -3 %
Net (Loss) Income (2.7 ) 0.5   -   0.6   -  
Diluted (Loss) Earnings Per Share (0.020 ) 0.003   -   0.004   -  

Non-GAAP(1) Income (Loss)

(1.9
)
1.5
 
-
 
1.4
 
-
 
Non-GAAP(1) Diluted Income (Loss) Per Share (0.014 ) 0.011   -   0.010   -  

Sandvine's cash, cash equivalents and marketable securities balance at the end of the first quarter remained strong at $90.0 million (November 30, 2010: $87.9 million).

Sandvine is focused on growing its fixed and mobile service provider customer base and the number of broadband subscribers they represent. The Company has over 200 service provider customers in over 80 countries. Together these customers serve hundreds of millions of subscribers. In the first quarter of 2011 Sandvine had thirteen new customer wins –the highest level in over two years.

  • By access technology: five DSL service providers, four mobile service providers and four cable operators.
  • By geography: six from North America, five from EMEA, one two from Asia Pacific.
  • Sales channel: four customers were won through reseller partners, including three through a strategic relationship with a global network equipment vendor.

Change in Functional and Reporting Currency

Effective December 1, 2010 (the "Conversion Date"), the Company adopted the U.S. dollar ("USD") as its functional currency. This is the result of the continuing shift that the Company has experienced in the proportion of its revenues, expenses, assets and liabilities which are denominated in USD, and its expectation that this shift will continue in future periods. Prior to the Conversion Date, the Company's operations were measured in Canadian dollars ("CAD"). In conjunction with this change in functional currency, the Company chose the USD as the Company's reporting currency. For further discussion on this, including the manner in which historical financial information has been converted from CAD to USD please see the Company Management Discussion and Analysis filed at www.sedar.com.

CONFERENCE CALL

The Company will discuss the financial results and business outlook on a conference call at 8:30 a.m. Eastern time (1:30 BST) today. A webcast will be available on Sandvine's website.

Local dial-in number 416 644 3416
Toll-free North America 877 974 0447
Toll-free United Kingdom 0800 358 5263

A replay of the call will be available at 416-640-1917 or toll-free at 877-289-8525 (passcode 4427721#) from approximately 10:30 a.m. Eastern time today through April 13.

ABOUT SANDVINE

Sandvine's network policy control solutions focus on protecting and improving the quality of experience on the Internet. Our award-winning network equipment and software helps DSL, FTTx, cable, fixed wireless and mobile operators better understand network traffic, manage network congestion, create new services and revenues, mitigate traffic that is malicious or undesirable to subscribers, deliver QoS-prioritized multimedia services and increase subscriber satisfaction. With over 200 service provider customers in more than 80 countries serving hundreds of millions of broadband and mobile data subscribers, Sandvine is enhancing the Internet experience worldwide.

CAUTION REGARDING FORWARD LOOKING INFORMATION

Certain statements in this press release which are not historical facts constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements related to Sandvine's projected revenues, earnings, growth rates, revenue mix and product plans are forward-looking statements as are any statements relating to future events, conditions or circumstances. The use of terms such as "may", "anticipated", "expected", "projected", "targeting", "estimate", "intend" 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, achievements or developments of the Company to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and the Company does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

Many factors could cause the actual results of the Company to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements, including, without limitation, each of the following factors, and those factors which are further discussed in the Company's Annual Information Form ("AIF"), a copy of which is available on SEDAR at www.sedar.com.

  • The Company's revenues may fluctuate from quarter to quarter and year to year depending upon sales cycles, customer demand and the timing of customer purchase decisions;

  • 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 upon and expects to continue to derive a large percentage of its revenue from both a small number of key customers and key reseller partners, none of whom are bound to any fixed purchase commitment or exclusivity obligations and could change their buying patterns and/or source of supply at any time, which could have a material impact on the Company's revenues. The Company's reseller partners may offer their own products which are competitive with the Company's products;

  • The Company faces intense competition in markets where there are typically several different competing technologies and rapid technological changes. The Company faces the risk of emergence of new technologies that may be either competitive to those of the Company or that change the requirements of the Company's customers for solutions such as those offered by the Company;

  • The Company's growth is dependent on the development of the market for network policy control solutions and the decisions of the Company's target customers to deploy and further invest in those technologies, which decisions may be impacted upon by changing requirements in the area of broadband network management policies and/or changes in the regulatory framework to which the Company's customers may be subject. In particular, numerous telecommunications regulators in various jurisdictions have considered or are considering what, if any, regulations might be appropriate with respect to how internet service providers manage the impact of different types of traffic on their networks. These ongoing processes may cause uncertainty in the network investment decisions of the Company's target customers, and any new rules or regulations that result from these considerations may impact the demand for the Company's products within various markets, including markets that may not be considering any new regulation but where the Company's customers may look to other markets for future guidance or trends;

  • The majority of the Company's operating expenses are denominated in Canadian dollars, U.S. dollars and New Israeli Shekels. The Company's earnings are impacted by fluctuations in the exchange rates between the U.S. dollar and these currencies.

  • The Company currently has numerous business dealings, both directly and indirectly, with various entities based in Japan and those relationships could be impacted by the current environmental situation being faced in Japan. The Company does have, several suppliers within its supply chain that source sub-components and other materials from suppliers in Japan and to the extent that events in Japan interfere with the normal operations of those sub-suppliers it could result in an impact to the Company's ability to source materials and components used within the Company's products. In addition, the Company has historically generated a meaningful level of revenue from sales to customers and resellers within Japan. Although the Company has not been advised of any projected changes to network investment plans or projects of its target customers in Japan, it is possible that the current events in Japan could impact the future demand for the Company's products in Japan and thereby impact the Company's reported revenues in future periods.

Table 1

1. Non-GAAP Financial Measures

The following table provides a reconciliation of GAAP net income (loss) and related per share amounts to non-GAAP net income (loss) and the related per share amounts for the periods indicated. These non-GAAP financial measures which are used internally by management to evaluate the Company's ongoing performance exclude the impact of stock based compensation, amortization of intangible assets acquired through business acquisitions and goodwill and intangible impairment expenses (collectively referred to as "Excluded Expenses"). The Company provides these non-GAAP financial measures as it is the Company's view that the Excluded Expenses are either (i) not part of its normal day-to-day operations and/or (ii) represent a "non-cash" accounting charge that does not deplete its cash resources. Accordingly, the Company believes that such financial measures may also be useful to investors in enhancing their understanding of the Company's operating performance. Non-GAAP net income (loss) is not recognized under Canadian GAAP and does not have a standardized meaning prescribed by Canadian GAAP. Therefore it is unlikely to be comparable to similarly titled measures reported by other issuers. Non-GAAP financial measures should be considered in the context of the Company's GAAP results.

  Three month period ended
  February 28
2011
$
  November 30
2010
$
February 28
2010
$
  Amounts in US$ thousands
         
Net income (loss) (2,713 ) 603 464
         
Excluded Expenses        
Stock based compensation expense 634   631 634
Amortization of intangible assets acquired through business acquisitions 192   187 374
Net income (loss) excluding the impact of Excluded Expenses (1,887 ) 1,421 1,472
         
  Three month period ended
  February 28
2011
$
  November 30
2010
$
February 28
2010
$
         
Diluted earnings (loss) per share (0.020 ) 0.004 0.003
Impact on diluted earnings (loss) per share of Excluded Expenses 0.006   0.006 0.008
Diluted earnings (loss) per share excluding the impact of Excluded Expenses
 (0.014
)
 0.010

 0.011
 
 
Sandvine Corporation
Consolidated Interim Balance Sheets
As at February 28, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
 
  February 28
2011
$
  November 30
2010
$
 
Assets        
         
Current assets        
Cash and cash equivalents 16,785   87,949  
Short term investments 73,237   -  
Accounts receivable 17,997   25,485  
Inventory 12,136   11,268  
Other 3,979   3,201  
  124,134   127,903  
         
Non current assets        
Plant and equipment 12,020   12,341  
Intangible assets 6,382   5,125  
Other assets 511   511  
  18,913   17,977  
         
  143,047   145,880  
         
Liabilities        
         
Current liabilities        
Accounts payable and accrued liabilities 9,529   12,005  
Current portion of deferred revenue 11,453   10,257  
  20,982   22,262  
         
Non current liabilities        
Deferred revenue 620   703  
  620   703  
         
  21,602   22,965  
         
Shareholders' equity        
         
Share capital 120,169   119,570  
Contributed surplus 10,462   10,007  
Accumulated other comprehensive income 20,407   20,218  
Deficit (29,593 ) (26,880 )
  121,445   122,915  
         
  143,047   145,880  
 
 
Sandvine Corporation
Consolidated Interim Statements of Operations
For the three month period ended February 28, 2011
(in U.S. dollars, amounts in thousands, except share and per share data) (unaudited)
 
  February 28 2011
$
  February 28 2010
$
       
Revenue      
Product 13,492   17,797
Service 5,723   2,895
  19,215   20,692
Cost of sales      
Product 4,232   4,390
Service 1,407   878
  5,639   5,268
       
Gross margin 13,576   15,424
       
Expenses      
Sales and marketing 5,003   4,377
Research and development 6,835   6,210
General and administrative 2,436   2,349
Stock based compensation 634   634
Amortization of intangible assets 356   477
Depreciation 1,029   926
  16,293   14,973
Income (loss) from operations (2,717 ) 451
       
Interest and other income 42   47
Income (loss) before provision for income taxes (2,675 ) 498
       
Provision for income taxes      
Current 38   34
  38   34
       
Net income (loss) for the period (2,713 ) 464
       
Earnings (loss) per share      
Basic (0 .020 ) 0.003
Diluted (0 .020 ) 0.003
       
Basic weighted average number of shares outstanding 137,076,308   135,829,754
Diluted weighted average number of shares outstanding 137,076,308   139,591,777
 
 
Sandvine Corporation
Consolidated Interim Statements of Cash Flows
For the three month period ended February 28, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
 
  February 28 2011
$
  February 28 2010
$
 
         
Cash provided by (used in)        
         
Operating activities        
Net income (loss) for the period (2,713 ) 464  
Items not affecting cash        
  Amortization of intangible assets 356   477  
  Depreciation 1,082   993  
  Foreign exchange loss (gain) 14   120  
  Stock-based compensation 634   634  
  Other (51 ) -  
         
  (678 ) 2,688  
         
Changes in non-current balances (83 ) (69 )
Changes in non-cash working capital balances 4,656   1,020  
         
  3,895   3,639  
         
Investing activities        
Purchase of plant, equipment and intangible software assets (2,356 ) (1,163 )
Purchase of short term investments (113,218 ) (28,038 )
Sale of short term investments 39,981   31,297  
         
  (75,593 ) 2,096  
         
Financing activities        
Proceeds from the issuance of share capital 453   52  
         
Effect of foreign exchange gain (loss) on cash and cash equivalents 81   13  
         
Net increase in cash during the period (71,164 ) 5,800  
         
Cash and cash equivalents – Beginning of period 87,949   2,218  
         
Cash and cash equivalents – End of period 16,785   8,018  
         
         
Cash and cash equivalents are represented by        
Balances with banks 16,466   3,718  
Cash equivalents 319   4,300  

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