Sandvine Corporation
TSX : SVC
AIM : SAND

Sandvine Corporation

October 07, 2010 07:00 ET

Sandvine Reports Q3 2010 Results

WATERLOO, ONTARIO--(Marketwire - Oct. 7, 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 $24.4 million and GAAP net income of $2.2 million (non-GAAP1: $3.1 million) for its third quarter of 2010.

"The DSL and mobile access markets drove strong results again as network operators globally look to manage rapidly growing data traffic and differentiate service offerings with new plans that personalize the Internet experience for subscribers," said Dave Caputo, Sandvine's President and Chief Executive Officer. "International growth has been strong. Both the EMEA and Asia Pacific sales regions contributed record revenues, supported by record contributions from our robust reseller channel."

Approximately half of the Company's revenue was derived from the DSL access market, 30% from the mobile access market and 20% from cable network operators. Just over 60% of total revenues came from outside North America and, for the first time, over half of the Company's revenue was earned through reseller partners. Year-to-date, revenue has grown 38%.

FINANCIAL HIGHLIGHTS (All amounts are in Canadian dollars)  
Millions of dollars, except per share data and where otherwise indicated   Q3 2010     Q3 2009     Change     Q2 2010     Change  
Revenue   24.4     16.0     53 %   22.4     9 %
Gross Margin percent   74 %   73 %   1pp     74 %   Nil  
R&D, SG&A   13.8     13.6     1 %   11.8     17 %
Net Income (Loss)   2.2     (4.4 )   -     2.0     12 %
Diluted Earnings (Loss) Per Share   0.016     (0.032 )   -     0.014     14 %

Non-GAAP1 Income (Loss)
  3.1     (3.1 )   -     3.7     -17 %
Non-GAAP1 Diluted Income (Loss) Per Share   0.022     (0.023 )   -     0.026     -15 %

Sandvine's cash and marketable securities balance at the end of the quarter remained strong at $89.4 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 more than 90 million fixed line broadband subscribers and more than 250 million mobile subscribers, a rapidly growing number of whom use broadband data services.

In the third quarter of 2010 Sandvine won six new customers.

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

Change in Functional and Reporting Currency

As a result of the continuing shift experienced in the proportion of Sandvine's revenues, expenses, assets and liabilities that are denominated in U.S. dollars (USD), and its expectation that this shift will continue in future periods, effective December 1, 2010 Sandvine will adopt the USD as its functional and reporting currency. Prior to this conversion date, the Company's operations will continue to be measured and reported in Canadian dollars. An analysis of this change and its potential impacts has been included in the Company's Management's Discussion and Analysis, filed on SEDAR today.

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 866 250 4877
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 4368167#) from approximately 10:30 a.m. Eastern time today through October 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.

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 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, 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 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.

Amounts in thousands Three month period ended       Nine month period ended  
  August 31
2010
$
May 31
 2010
$
  August 31
2009
$
      August 31
2010
$
August 31
2009
$
 
                     
Net income (loss) 2,200 1,958   (4,358 )     4,716 (14,788 )
                     
Excluded Expenses                    
Stock based compensation expense 666 743   823       2,076 2,463  
Amortization of intangible assets acquired through business acquisitions 192 331   400       922 1,200  
Goodwill impairment - -   -       - 2,425  
Intangible impairment - 669   -       669 -  
Net income (loss) excluding the impact of Excluded Expenses 3,058 3,701   (3,135 )     8,383 (8,700 )
                     
  Three month period ended       Nine month period ended  
  August 31
2010
$
May 31
2010
$
  August 31
2009
$
      August 31
2010
$
August 31
2009
$
 
                     
Diluted earnings (loss) per share 0.016 0.014   (0.032 )     0.034 (0.109 )
Impact on diluted earnings (loss) per share of Excluded Expenses 0.006 0.012   0.009       0.026 0.045  
Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.022 0.026   (0.023 )     0.060 (0.064 )
   
   
Sandvine Corporation  
Consolidated Interim Balance Sheets  
As at August 31, 2010  
(in Canadian dollars, amounts in thousands) (unaudited)  
         
  August 31 2010$   November 30 2009$  
Assets        
         
Current assets        
Cash and cash equivalents 5,090   2,341  
Marketable securities 84,269   83,423  
Accounts receivable 23,849   20,741  
Inventory 12,464   9,744  
Other 2,629   1,773  
  128,301   118,022  
         
Non-current assets        
Plant and equipment 13,394   13,026  
Intangible assets 3,761   5,221  
Other assets 525   -  
  17,680   18,247  
         
  145,981   136,269  
         
Liabilities        
         
Current liabilities        
Accounts payable and accrued liabilities 10,994   10,732  
Current portion of deferred revenue 10,069   7,513  
  21,063   18,245  
         
Non-current liabilities        
Deferred revenue 461   790  
  461   790  
         
  21,524   19,035  
         
Shareholders' equity        
         
Share capital 147,425   146,820  
Contributed surplus 10,819   9,000  
Accumulated other comprehensive loss (7 ) (90 )
Deficit (33,780 ) (38,496 )
  124,457   117,234  
         
  145,981   136,269  
   
Sandvine Corporation  
Consolidated Interim Statements of Operations  
For the three and nine months periods ended August 31, 2010  
(in Canadian dollars amounts in thousands, except share and per share data) (unaudited)  
   
  Three months ended     Nine months ended  
  August 31
2010
$
  August 31
2009
$
    August 31
2010
$
  August 31
2009
$
 
                   
Revenue                  
Product 18,527   11,995     54,414   37,045  
Service 5,920   4,035     14,300   12,771  
  24,447   16,030     68,714   49,816  
Cost of sales                  
Product 4,864   3,452     13,905   10,211  
Service 1,552   872     3,871   2,343  
  6,416   4,324     17,776   12,554  
                   
Gross margin 18,031   11,706     50,938   37,262  
                   
Expenses                  
Sales and marketing 4,820   4,682     13,925   15,313  
Research and development 6,973   6,696     18,809   20,684  
General and administrative 1,971   2,228     6,441   6,578  
Stock based compensation 666   823     2,076   2,463  
Amortization of intangible assets 328   537     1,272   1,570  
Depreciation 1,150   1,210     3,181   3,445  
Intangible impairment -   -     669   -  
Goodwill impairment -   -     -   2,425  
  15,908   16,176     46,373   52,478  
Income (loss) from operations 2,123   (4,470 )   4,565   (15,216 )
                   
Interest and other income 117   114     252   580  
Income (loss) before provision for income taxes 2,240   (4,356 )   4,817   (14,636 )
                   
Provision for income taxes                  
Current 40   27     101   95  
Future -   (25 )   -   57  
  40   2     101   152  
                   
Net income (loss) for the period 2,200   (4,358 )   4,716   (14,788 )
                   
Earnings (loss) per share                  
Basic 0.016   (0.032 )   0.035   (0.109 )
Diluted 0.016   (0.032 )   0.034   (0.109 )
Basic weighted average number of shares outstanding 136,466,457   135,653,593     136,101,292   135,597,816  
Diluted weighted average number of shares outstanding 140,729,379   135,653,593     140,557,024   135,597,816  
   
Sandvine Corporation  
Consolidated Interim Statements of Cash Flows  
For the three and nine months periods ended August 31, 2010  
(in Canadian dollars amounts in thousands, except share and per share data) (unaudited)  
   
  Three months ended     Nine months ended  
  August 31
2010
$
  August 31
2009
$
    August 31
2010
$
 
August 31
2009
$
 
Cash provided by (used in)                  
                   
Operating activities                  
Net income (loss) for the period 2,200   (4,358 )   4,716   (14,788 )
Items not affecting cash                  
  Amortization of intangible assets 328   537     1,272   1,570  
  Depreciation 1,238   1,237     3,419   3,528  
  Foreign exchange loss (gain) (107 ) 155     (100 ) 279  
  Stock-based compensation 666   823     2,076   2,463  
  Goodwill impairment -   -     -   2,425  
  Future income tax provision -   (25 )   -   57  
  Intangible impairment -   -     669   -  
                   
  4,325   (1,631 )   12,052   (4,466 )
                   
Changes in non-current balances (272 ) 127     (329 ) 337  
Changes in non-cash working capital balances (4,292 ) (525 )   (3,478 ) 3,473  
                   
  (239 ) (2,029 )   8,245   (656 )
                   
Investing activities                  
Purchase of plant, equipment and intangible software assets (2,191 ) (589 )   (5,071 ) (4,435 )
Purchase of marketable securities (22,103 ) (85,993 )   (82,689 ) (470,411 )
Sale of marketable securities 21,935   84,921     81,819   474,234  
                   
  (2,359 ) (1,661 )   (5,941 ) (612 )
                   
Financing activities                  
Proceeds from the issuance of share capital 212   44     445   64  
                   
  212   44     445   64  
                   
Net (decrease) increase in cash during period (2,386 ) (3,646 )   2,749   (1,204 )
                   
Cash and cash equivalents – Beginning of period 7,476   6,314     2,341   3,872  
                   
Cash and cash equivalents – End of period 5,090   2,668     5,090   2,668  
                   
Cash and cash equivalents are represented by                  
Balances with banks 3,487   2,427     3,487   2,427  
Cash equivalents 1,603   241     1,603   241  
             

Contact Information

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