Sandvine Incorporated
TSX : SVC
AIM : SAND

Sandvine Incorporated

October 06, 2011 07:00 ET

Sandvine Reports Q3 2011 Results

WATERLOO, ONTARIO--(Marketwire - Oct. 6, 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 to a record $25.6 million in its third quarter of 2011. Revenue was up by 7% compared to the previous quarter (Q2 2011: $24.0 million) and up by 10% compared to Q3 2010 (Q3 2010: $23.3 million). The Company recorded GAAP net income of $522,000 (non-GAAP(1) net income: $1.5 million). All results are reported in U.S. dollars.

The DSL and wireless markets, which represented 48% and 32% of revenues respectively (cable: 18%), continue to fuel Sandvine's revenue growth. During the third quarter, the Company also achieved record revenue of $10.7 million from the EMEA region, which represented 42% of revenue (NA: 33%; CALA: 13%; APAC: 12%).

Sandvine added 12 new service provider customers in the third quarter, including eight wireless customers. Year-to-date, Sandvine has added 37 customers (including 19 wireless customers), well ahead of the 26 total customers added in FY 2010.

"In a given quarter approximately 80% of our order value typically comes from follow-on business from existing customers. The accelerated pace of new customer wins this year gives us an excellent opportunity to drive follow-on business in the future," said Dave Caputo, Sandvine's President and CEO.

FINANCIAL HIGHLIGHTS (All amounts are in U.S. dollars)

Millions of dollars, except per share data and where otherwise indicated Q3
2011
Q2
2011

Change
Q3
2010

Change
Revenue 25.6 24.0 7 % 23.3 10 %
Gross Margin percent 76 % 77 % -1pp 74 % 2pp
R&D, SG&A 16.6 16.1 3 % 13.2 25 %
Net Income (Loss) 0.5 0.1 729 % 1.9 -73 %
Diluted Earnings (Loss) Per Share 0.004 0.000 900 % 0.014 -71 %

Non-GAAP(1) Income (Loss)

1.5

1.0

49
%
2.8

-47
%
Non-GAAP(1) Diluted Income (Loss) Per Share 0.010 0.007 43 % 0.020 -50 %

Sandvine's cash, cash equivalents and short term investments balance at the end of the second quarter remained strong at $75.1 million, which was down from comparable periods primarily due to changes in working capital and capital asset additions.

Other highlights of Sandvine's third quarter include:

- Launched a Real-Time Entertainment Dashboard for its Network Analytics product;

- Released version 4 of its Usage Management product;

- Demonstrated LTE-readiness through work with four existing customers on the LTE path.

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 800 814 4859
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 4474688#) from approximately 10:30 a.m. Eastern time today through October 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 well over 200 service provider customers in more than 85 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 Nine month period ended
August 31
2011
$
May 31
2011
$
August 31
2010
$
August 31
2011
$
August 31
2010
$
Amounts in US$ thousands
Net income (loss) 522 63 1,949 (2,128 ) 4,110
Excluded Expenses
Stock based compensation expense 752 724 639 2,110 2,000
Amortization of intangible assets acquired through business acquisitions
185

192

184

569

883
Intangible impairment - - - - 643
Net income (loss) excluding the impact of Excluded Expenses 1,459 979 2,772 551 7,636
Three month period ended Nine month period ended
August 31
2011
$
May 31
2011
$
August 31
2010
$
August 31
2011
$
August 31
2010
$
Diluted earnings (loss) per share 0.004 0.000 0.014 (0.015 ) 0.029
Impact on diluted earnings (loss) per share of Excluded Expenses 0.006 0.007 0.006 0.019 0.025
Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.010 0.007 0.020 0.004 0.054
Sandvine Corporation
Consolidated Interim Balance Sheets
As at August 31, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
August 31
2011
$
November 30
2010
$
Restated
Assets
Current assets
Cash and cash equivalents 1,796 87,949
Short term investments 73,302 -
Accounts receivable 29,781 25,485
Inventory 17,484 11,268
Other 4,334 3,201
126,697 127,903
Non current assets
Plant and equipment 12,598 12,341
Intangible assets 5,938 5,125
Other assets 511 511
19,047 17,977
145,744 145,880
Liabilities
Current liabilities
Accounts payable and accrued liabilities 9,718 12,005
Current portion of deferred revenue 11,773 10,257
21,491 22,262
Non current liabilities
Deferred revenue 849 703
22,340 22,965
Shareholders' equity
Share capital 120,425 119,570
Contributed surplus 11,849 10,007
Accumulated other comprehensive income 20,138 20,218
Deficit (29,008 ) (26,880 )
123,404 122,915
145,744 145,880
Sandvine Corporation
Consolidated Interim Statements of Operations
For the three and nine month periods ended August 31, 2011
(in U.S. dollars, amounts in thousands, except share and per share data) (unaudited)
Three months ended Nine months ended
August 31
2011
$
August 31
2010
$
August 31
2011
$
August 31
2010
$
Restated Restated
Revenue
Product 19,111 17,607 50,678 51,784
Service 6,455 5,660 18,064 13,717
25,566 23,267 68,742 65,501
Cost of sales
Product 4,424 4,628 12,517 13,252
Service 1,638 1,490 4,715 3,724
6,062 6,118 17,232 16,976
Gross margin 19,504 17,149 51,510 48,525
Expenses
Sales and marketing 5,137 4,628 14,967 13,397
Research and development 8,667 6,695 23,921 18,060
General and administrative 2,751 1,893 8,006 6,180
Stock based compensation 752 639 2,110 2,000
Amortization of intangible assets 544 315 1,446 1,218
Depreciation 1,102 1,104 3,158 3,063
Intangible impairment - - - 643
18,953 15,274 53,608 44,561
Income (loss) from operations 551 1,875 (2,098 ) 3,964
Interest and other income 15 112 94 243
Income (loss) before provision for income taxes 566 1,987 (2,004 ) 4,207
Provision for income taxes
Current 44 38 124 97
Net income (loss) for the period 522 1,949 (2,128 ) 4,110
Earnings (loss) per share
Basic 0.004 0.014 (0.015 ) 0.030
Diluted 0.004 0.014 (0.015 ) 0.029
Basic weighted average number of shares outstanding 137,760,777 136,466,457 137,490,171 136,101,292
Diluted weighted average number of shares outstanding 141,448,165 140,729,379 137,490,171 140,557,024
Sandvine Corporation
Consolidated Interim Statements of Cash Flows
For the three and nine month periods ended August 31, 2011
(in U.S. dollars, amounts in thousands) (unaudited)
Three months ended Nine months ended
August 31
2011
$
August 31
2010
$
August 31
2011
$
August 31
2010
$
Restated (note 2) Restated
(note 2)
Cash provided by (used in)
Operating activities
Net income (loss) for the period 522 1,949 (2,128 ) 4,110
Items not affecting cash
Amortization of intangible assets 544 315 1,446 1,218
Depreciation 1,153 1,189 3,315 3,293
Foreign exchange loss (gain) (26 ) (102 ) (106 ) 172
Stock-based compensation 752 639 2,110 2,000
Other 22 - (63 ) 643
2,967 3,990 4,574 11,436
Changes in non-current balances 35 (271 ) 146 (316 )
Changes in non-cash working capital balances (6,560 ) (3,953 ) (12,469 ) (3,147 )
(3,558 ) (234 ) (7,749 ) 7,973
Investing activities
Purchase of plant, equipment and intangible software assets (1,749 ) (2,102 ) (5,829 ) (4,887 )
Purchase of short term investments (37,753 ) (21,223 ) (235,668 ) (79,668 )
Sale of short term investments 42,722 21,062 162,362 78,729
3,220 (2,263 ) (79,135 ) (5,826 )
Financing activities
Proceeds from the issuance of share capital 48 204 650 430
Effect of foreign exchange gain on cash and cash equivalents (28 ) (99 ) 81 (23 )
Net increase (decrease) in cash during period (318 ) (2,392 ) (86,153 ) 2,554
Cash and cash equivalents – Beginning of period 2,114 7,164 87,949 2,218
Cash and cash equivalents – End of period 1,796 4,772 1,796 4,772
Cash and cash equivalents are represented by
Balances with banks 1,768 3,269 1,768 3,269
Cash equivalents 28 1,503 28 1,503

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