Sandvine Corporation
TSX : SVC
AIM : SAND

Sandvine Corporation

July 08, 2010 07:00 ET

Sandvine Reports Q2 2010 Results

WATERLOO, ONTARIO--(Marketwire - July 8, 2010) -

Attention: Technology Editors

Sandvine, (TSX:SVC)(AIM:SAND) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported record quarterly revenue of $22.4 million and GAAP net income of $2.0 million (non-GAAP1: $3.7 million) for its second quarter of 2010.

"This is our fourth consecutive quarter of revenue growth and second consecutive quarter with positive earnings and cash flow. We remain focused on continuing our revenue growth and are pleased with our progress towards this goal so far this year," said Dave Caputo, Sandvine's President and Chief Executive Officer.

The DSL and mobile markets each had record quarters, each contributing 40% of Sandvine's second quarter revenue, while the cable market contributed 20% of revenue. Sandvine's revenue was split almost equally between North America and all other sales regions combined. Forty-one percent of revenue was earned through reseller partners.

Over the quarter Sandvine generated $3.1 million in cash which increased its cash and marketable securities balance to $91.6 million at May 31, due largely to positive cash flow from operations.

FINANCIAL HIGHLIGHTS (All amounts are in Canadian dollars)  
Millions of dollars, except per share data and where otherwise indicated Q2 2010   Q2 2009   CHG   Q1 2010   CHG  
Revenue 22.4   15.2   47 % 21.9   2 %
Gross Margin percent 74 % 76 % -2pp   75 % -1pp  
R&D, SG&A 11.8   14.7   -20 % 13.6   -13 %
Net Income (Loss) 2.0   (5.6 ) -   0.6   251 %
Diluted Earnings (Loss) Per Share 0.014   (0.042 ) -   0.004   250 %
Non-GAAP(1) Income (Loss) 3.7   (4.4 ) -   1.6   128 %
                     
Non-GAAP(1) Diluted Income (Loss) Per Share 0.026   (0.033 ) -   0.012   117 %

GAAP earnings were positively impacted by $3.2 million of funding from Ontario's Next Generation of Jobs Fund. The Company anticipates recording funding of $0.6 – $0.7 million per quarter of funding related to this program during the term of the agreement which ends in February 2014. GAAP earnings were negatively impacted in the quarter by a $0.7 million one-time, non-cash intangible asset impairment charge.

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 190 service provider customers in over 80 countries. Together these customers serve more than 90 million fixed line broadband subscribers and more than 200 million mobile subscribers, a rapidly growing number of whom use broadband data services.

In the second quarter of 2010 Sandvine won nine new customers.

  • By access technology: five DSL service providers, three mobile service providers and one cable operator.
  • By geography: four from North America, three from EMEA and one each from Asia Pacific and Caribbean and Latin America. Sandvine made initial sales to customers in three new countries.
  • Sales channel: three customers were won through reseller partners, including two that were won through strategic relationships with global network equipment vendors.

CONFERENCE CALL

The Company will discuss the quarterly 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 800 814 4860
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 4321489#) from approximately 10:30 a.m. Eastern time on the day of the call through July 15.

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 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 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 intelligent broadband network management 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, the Federal Communications Commission in the United States (the "FCC") has announced a Notice of Proposed Rulemaking pursuant to which the FCC intends to consider whether additional regulation in respect of network management practices of internet service providers is required. The FCC has also initiated a Notice of Inquiry to identify the approach that will best support its efforts in this regard, including the possibility of regulating broadband services (or just specific aspects of it) under the same (Title II) requirements of the United States' Telecommunications Act under which traditional telecommunications services have been regulated. These processes may cause uncertainty in the network investment decisions of the Company's target customers, and any new rules or regulations that result from this process may impact the demand for the Company's products within the United States, which has historically been the Company's largest market, and elsewhere, as service providers and regulators in other countries may look to practices adopted in the United States;
  • The majority of the Company's operating expenses are denominated in Canadian dollars, U.S. dollars and New Israeli Shekels while its revenues and cost of sales are generally denominated in U.S. dollars. The Company's earnings are impacted by fluctuations in the exchange rates between these and other currencies in which the Company trades;

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   Six month period ended
  May 31
2010
$
February 28
2010
$
May 31
2009
$
  May 31
2010
$
May 31
2009
$
   
  Amounts in thousands
             
Net income (loss) 1,958 558 (5,635 ) 2,516 (10,430)
             
Excluded Expenses            
Stock based compensation expense 743 667 824   1,410 1,640
Amortization of intangible assets acquired through business acquisitions 331 400 400   731 800
Goodwill impairment - - -   - 2,425
Intangible impairment 669 - -   669 -
Net income (loss) excluding the impact of Excluded Expenses 3,701 1,625 (4,411 ) 5,326 (5,565)
               
  Three month period ended   Six month period ended  
  May 31
2010
$
February 28
2010
$
May 31
2009
$
  May 31
2010
$
May 31
2009
$
 
               
Diluted earnings (loss) per share 0.014 0.004 (0.042 ) 0.018 (0.077 )
Impact on diluted earnings (loss) per share of Excluded Expenses 0.012 0.008 0.009   0.020 0.036  
Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.026 0.012 (0.033 ) 0.038 (0.041 )
         
Sandvine Corporation         
Interim Balance Sheets         
As at May 31, 2010        
(in Canadian dollars, amounts in thousands) (unaudited)        
  May 31
2010
$
  November 30
2009
$
 
Assets        
         
Current assets        
Cash and cash equivalents 7,476   2,341  
Marketable securities 84,097   83,423  
Accounts receivable 17,616   20,741  
Inventory 12,199   9,744  
Other 2,258   1,773  
  123,646   118,022  
         
Non current assets        
Plant and equipment 13,649   13,026  
Intangible assets 2,522   5,221  
Intangible asset held for sale 1,105   -  
  17,276   18,247  
         
  140,922   136,269  
         
Liabilities        
         
Current liabilities        
Accounts payable and accrued liabilities 8,884   10,732  
Current portion of deferred revenue 9,989   7,513  
  18,873   18,245  
         
Non current liabilities        
Deferred revenue 734   790  
  734   790  
         
  19,607   19,035  
         
Shareholders' equity        
         
Share capital 147,182   146,820  
Contributed surplus 10,213   9,000  
Accumulated other comprehensive loss (100 ) (90 )
Deficit (35,980 ) (38,496 )
  121,315   117,234  
         
  140,922   136,269  
         
Sandvine Corporation         
Interim Balance Sheets         
As at May 31, 2010         
(in Canadian dollars, amounts in thousands) (unaudited)         
         
  Three months ended   Six months ended  
             
  May 31
2010
$
May 31
2009
$
  May 31
2010
$
May 31
2009
$
 
             
Revenue            
Product 17,071 10,186   35,887 25,050  
Service 5,333 5,023   8,380 8,736  
  22,404 15,209   44,267 33,786  
Cost of sales            
Product 4,403 2,977   9,041 6,759  
Service 1,395 714   2,319 1,471  
  5,798 3,691   11,360 8,230  
             
Gross margin 16,606 11,518   32,907 25,556  
             
Expenses            
Sales and marketing 4,502 5,380   9,105 10,631  
Research and development 5,305 6,890   11,836 13,988  
General and administrative 1,999 2,438   4,470 4,350  
Stock based compensation 743 824   1,410 1,640  
Amortization of intangible assets 434 535   944 1,033  
Depreciation 1,057 1,185   2,031 2,235  
Intangible impairment 669 -   669 -  
Goodwill impairment - -   - 2,425  
  14,709 17,252   30,465 36,302  
Income (loss) from operations 1,897 (5,734 ) 2,442 (10,746 )
             
Interest and other income 86 134   135 466  
Income (loss) before provision for income taxes 1,983 (5,600 ) 2,577 (10,280 )
             
Provision for income taxes            
Current 25 21   61 68  
Future - 14   - 82  
  25 35   61 150  
             
Net income (loss) for the period 1,958 (5,635 ) 2,516 (10,430 )
             
Earnings (loss) per share            
Basic 0.014 (0.042 ) 0.019 (0.077 )
Diluted 0.014 (0.042 ) 0.018 (0.077 )
Basic weighted average number of shares outstanding 136,006,036 135,585,389   135,918,460 135,569,699  
Diluted weighted average number of shares outstanding 141,153,586 135,585,389   140,450,955 135,569,699  
             
         
Sandvine Corporation         
Interim Balance Sheets         
As at May 31, 2010         
(in Canadian dollars, amounts in thousands) (unaudited)         
         
  Three months ended   Six months ended  
                 
  May 31
2010
$
  May 31
2009
$
  May 31
2010
$
  May 31
2009
$
 
Cash provided by (used in)                
                 
Operating activities                
Net income (loss) for the period 1,958   (5,635 ) 2,516   (10,430 )
Items not affecting cash                
  Amortization of intangible assets 434   535   944   1,033  
  Depreciation 1,137   1,200   2,181   2,291  
  Foreign exchange loss (gain) 161   (104 ) 150   (115 )
  Stock-based compensation 743   824   1,410   1,640  
  Goodwill impairment -   -   -   2,425  
  Future income tax provision -   14   -   82  
  Intangible impairment 669   -   669   -  
                 
  5,102   (3,166 ) 7,870   (3,074 )
                 
Changes in non-current balances 19   146   (57 ) 210  
Changes in non-cash working capital balances (477 ) 1,551   671   4,237  
                 
  4,644   (1,469 ) 8,484   1,373  
                 
Investing activities                
Purchase of plant, equipment and intangible software assets (1,657 ) (1,101 ) (2,880 ) (3,846 )
Purchase of marketable securities (31,097 ) (172,361 ) (60,586 ) (384,418 )
Sale of marketable securities 26,969   171,727   59,884   389,313  
                 
  (5,785 ) (1,735 ) (3,582 ) 1,049  
                 
Financing activities                
Proceeds from the issuance of share capital 178   20   233   20  
                 
  178   20   233   20  
                 
Net increase (decrease) increase in cash during period (963 ) (3,184 ) 5,135   2,442  
                 
Cash and cash equivalents – Beginning of period 8,439   9,498   2,341   3,872  
                 
Cash and cash equivalents – End of period 7,476   6,314   7,476   6,314  
                 
Cash and cash equivalents are represented by                
Balances with banks 5,880   1,692   5,880   1,692  
Cash equivalents 1,596   4,622   1,596   4,622  
           

Contact Information

  • INVESTOR RELATIONS CONTACT:
    Sandvine
    Rick Wadsworth
    +1 519 880 2400 ext. 3503
    rwadsworth@sandvine.com
    or
    MEDIA CONTACT:
    Sandvine
    Jennifer Ross
    +1 519 880 2232
    jross@sandvine.com
    or
    AIM NOMAD:
    Canaccord Adams Limited
    Andrew Chubb/Simon Bridges
    +44 0207 050 6500