Sandvine Incorporated
TSX : SVC
AIM : SAND

Sandvine Incorporated

July 07, 2011 07:00 ET

Sandvine Reports Q2 2011 Results

WATERLOO, ONTARIO--(Marketwire - July 7, 2011) - Sandvine, (TSX:SVC)(AIM:SAND) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported that revenue grew by 25% to $24.0 million in its second quarter of 2011 (Q1 2011: $19.2 million). The Company recorded GAAP net income of $63,000 (non-GAAP(1) net income: $1 million). Year-to-date revenue was $43.2 million, up 2% to from the comparable period of 2010. All results are reported in U.S. dollars.

Sandvine achieved record wireless revenue of $11.1 million, representing 46% of the Company's revenue for the quarter (DSL: 36%, Cable: 16%).

"We won seven new wireless customers in the quarter," said Dave Caputo, Sandvine's President and Chief Executive Officer. "We have built our base of over 50 wireless service provider customers largely over the last two and a half years and those efforts are paying off with new wins and several significant follow-on orders."

During the second quarter, approximately 52% of total revenues came from outside North America (EMEA: 27%; APAC: 16%; CALA: 9%) and 49% of the Company's revenue was earned through reseller partners. Sandvine's second quarter results also reflect the success of recent investments in new products.

"During the quarter, demand for our Service Creation solutions, which allow customers to offer differentiated services to their subscribers, was higher than for our traditional Traffic Management solutions. We are also seeing the benefit of our investment in new hardware products as the PTS 24000 and PTS 22000 products have become our customers' platforms of choice," added Caputo. "Sandvine is the market share leader in network policy control thanks to unmatched R&D efforts in the space. Our new products continue to be rewarded with orders, and we have only begun to explore how policy can unlock value for broadband network operators and subscribers."

FINANCIAL HIGHLIGHTS (All amounts are in U.S. dollars)
Millions of dollars, except per share data and where otherwise indicated Q2
2011
Q1
2011

Change
Q2
2010

Change
Revenue 24.0 19.2 25 % 21.5 11 %
Gross Margin percent 77 % 71 % 6pp 74 % 3pp
R&D, SG&A 16.1 14.3 13 % 11.5 40 %
Net Income (Loss) 0.1 (2.7 ) - 1.7 -96 %
Diluted Earnings (Loss) Per Share 0.000 (0.020 ) - 0.012 -
Non-GAAP(1) Income (Loss) 1.0 (1.9 ) - 3.4 -71 %
Non-GAAP(1) Diluted Income (Loss) Per Share 0.007 (0.014 ) - 0.024 -71 %

Sandvine's cash, cash equivalents and short term investments balance at the end of the second quarter remained strong at $80.4 million, though down from comparable periods. The current quarter decline related to a use of cash from changes in working capital balances, primarily driven by a $5.7 million increase in accounts receivable.

Other highlights of Sandvine's second quarter include:

  • Won 12 new customers across network topologies, sales regions and product categories;
  • Launched a Traffic Management Dashboard for its Network Analytics product;
  • Published its latest Global Internet Phenomena Report, in which the Company broke the news that Netflix is now 29.7% of peak downstream traffic in North America, where it has become the largest source of Internet traffic overall.

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 3414
Toll-free North America 877 974 0445
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 4450263#) from approximately 10:30 a.m. Eastern time today through July 14.

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. For more information, please visit www.sandvine.com.

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 legislators and 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.

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
2011
$
February 28 2011
$
May 31
2010
$
May 31
2011
$
May 31
2010
$
Amounts in US$ thousands
Net income (loss) 63 (2,713 ) 1,697 (2,650 ) 2,162
Excluded Expenses
Stock based compensation expense 724 634 727 1,358 1,361
Amortization of intangible assets acquired through business acquisitions
192

192

325

384

699
Intangible impairment - - 643 - 643
Net income (loss) excluding the impact of Excluded Expenses 979 (1,887 ) 3,392 (908 ) 4,865
Three month
period ended
Six month
period ended
May 31
2011
$
February 28 2011
$
May 31
2010
$
May 31
2011
$
May 31
2010
$
Diluted earnings (loss) per share 0.000 (0.020 ) 0.012 (0.019 ) 0.015
Impact on diluted earnings (loss) per share of Excluded Expenses 0.007 0.006 0.012 0.012 0.020
Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.007 (0.014 ) 0.024 (0.007 ) 0.035
Sandvine Corporation
Consolidated Interim Balance Sheets
As at May 31, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
May 31
2011
$
November 30
2010
$
Restated
Assets
Current assets
Cash and cash equivalents 2,114 87,949
Short term investments 78,274 -
Accounts receivable 23,656 25,485
Inventory 13,928 11,268
Other 4,779 3,201
122,751 127,903
Non current assets
Plant and equipment 12,219 12,341
Intangible assets 6,284 5,125
Other assets 511 511
19,014 17,977
141,765 145,880
Liabilities
Current liabilities
Accounts payable and accrued liabilities 7,441 12,005
Current portion of deferred revenue 11,110 10,257
18,551 22,262
Non current liabilities
Deferred revenue 814 703
19,365 22,965
Shareholders' equity
Share capital 120,347 119,570
Contributed surplus 11,124 10,007
Accumulated other comprehensive income 20,459 20,218
Deficit (29,530 ) (26,880 )
122,400 122,915
141,765 145,880
Sandvine Corporation
Consolidated Interim Statements of Operations
For the three and six month periods ended May 31, 2011
(in U.S. dollars, amounts in thousands, except share and per share data) (unaudited)
Three months ended Six months ended
May 31
2011
$
May 31
2010
$
May 31
2011
$
May 31
2010
$
Restated Restated
Revenue
Product 18,075 16,380 31,567 34,177
Service 5,886 5,162 11,609 8,057
23,961 21,542 43,176 42,234
Cost of sales
Product 3,861 4,234 8,093 8,623
Service 1,670 1,356 3,077 2,234
5,531 5,590 11,170 10,857
Gross margin 18,430 15,952 32,006 31,377
Expenses
Sales and marketing 4,827 4,392 9,830 8,769
Research and development 8,419 5,155 15,254 11,365
General and administrative 2,819 1,938 5,255 4,287
Stock based compensation 724 727 1,358 1,361
Amortization of intangible assets 546 426 902 903
Depreciation 1,027 1,033 2,056 1,959
Intangible impairment - 643 - 643
18,362 14,314 34,655 29,287
Income (loss) from operations 68 1,638 (2,649 ) 2,090
Interest and other income 37 84 79 131
Income (loss) before provision for income taxes 105 1,722 (2,570 ) 2,221
Provision for income taxes
Current 42 25 80 59
Net income (loss) for the period 63 1,697 (2,650 ) 2,162
Earnings (loss) per share
Basic 0.000 0.012 (0.019 ) 0.016
Diluted 0.000 0.012 (0.019 ) 0.015
Basic weighted average number of shares outstanding 137,614,545 136,006,036 137,347,444 135,918,460
Diluted weighted average number of shares outstanding 142,104,108 141,153,586 137,347,444 140,450,955
Sandvine Corporation
Consolidated Interim Statements of Cash Flows
For the three and six month periods ended May 31, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
Three months ended Six months ended
May 31
2011
$
May 31
2010
$
May 31
2011
$
May 31
2010
$
Restated Restated
Cash provided by (used in)
Operating activities
Net income (loss) for the period 63 1,697 (2,650 ) 2,162
Items not affecting cash
Amortization of intangible assets 546 426 902 903
Depreciation 1,080 1,111 2,162 2,104
Foreign exchange loss (gain) (94 ) 154 (80 ) 274
Stock-based compensation 724 727 1,358 1,361
Other (34 ) 643 (85 ) 643
2,285 4,758 1,607 7,447
Changes in non-current balances 194 24 111 (45 )
Changes in non-cash working capital balances (10,565 ) (210 ) (5,909 ) 806
(8,086 ) 4,572 (4,191 ) 8,208
Investing activities
Purchase of plant, equipment and intangible software assets (1,724 ) (1,622 ) (4,080 ) (2,785 )
Purchase of short term investments (84,697 ) (30,407 ) (197,915 ) (58,445 )
Sale of short term investments 79,659 26,370 119,640 57,667
(6,762 ) (5,659 ) (82,355 ) (3,563 )
Financing activities
Proceeds from the issuance of share capital 149 174 602 226
Effect of foreign exchange gain on cash and cash equivalents 28 59 109 75
Net increase (decrease) in cash during period (14,671 ) (854 ) (85,835 ) 4,946
Cash and cash equivalents – Beginning of period 16,785 8,018 87,949 2,218
Cash and cash equivalents – End of period 2,114 7,164 2,114 7,164
Cash and cash equivalents are represented by
Balances with banks 1,795 5,635 1,795 5,635
Cash equivalents 319 1,529 319 1,529

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