Bridgewater Systems Announces Second Quarter 2008 Results



    OTTAWA, July 31 /CNW/ - Bridgewater Systems (TSX: BWC) today announced
its financial results for the three and six months ended June 30, 2008. All
amounts are stated in Canadian dollars unless otherwise noted.

    
    Q2 2008 Highlights

    -   Revenue was $11.8 million, an increase of 18%, or 33% in common
        currency, compared to $9.9 million in Q2 2007
    -   Revenue from the migration of 3G to 4G networks contributed 24% of
        revenue versus 0% in the same period last year
    -   Net earnings were $1.3 million, or $0.05 per diluted share, compared
        with $0.4 million, or $0.02 per diluted share, in Q2 2007
    -   Awarded a three-year contract with Verizon Wireless and secured an
        initial order of $30 million to provide an integrated solution
    -   Selected as the network access control vendor for Sprint's nationwide
        XOHM WiMAX network starting in Q2 2008
    -   Booked, contracted and renewal-based revenue now represents
        approximately 83% of forecasted revenue for the year
    

    "We reported solid results in the second quarter due to continued growth
from our existing customers," said Ed Ogonek, CEO of Bridgewater Systems. "We
reached an important milestone in June when we signed a three-year contract
with Verizon Wireless which includes an initial order valued at $30 million to
provide an integrated solution. This contract provides us with significant
revenue visibility for fiscal 2009 and places us in a strong position to sell
integrated solutions to new and existing customers. We also signed an
important contract with Sprint extending our software and service solution for
their 3G to 4G network."
    "Based on our results in the first half and our outlook for the second
half of the year, we are now anticipating revenue growth of approximately 25%.
Approximately 83% of our forecasted revenue for fiscal 2008 is booked,
contracted and renewal-based. While some specific markets and carriers are
slowing program rollouts, the overall market trends continue to look positive.
Wireless data services growth remains strong, fueling the long-term demand for
our software solutions."

    Financial Review

    In the second quarter of 2008, revenue was $11.8 million
(US$11.8 million), compared to $9.9 million (US$8.8 million) for the same
period last year, and $8.6 million (US$8.6 million) in the first quarter of
2008. Sales growth was particularly strong in the service and support area,
which represented 39% of sales compared to 23% in the same quarter last year.
During Q2 2008, four new customers were added, bringing total customer
deployments to 128.
    The Company continues to diversify its revenue mix with CDMA customers
accounting for 51% of revenue in Q2 2008 versus 81% in Q2 2007. Revenue
derived from the migration of 3G to 4G networks contributed 24% of revenue
compared to 0% in the same period last year. Wireline revenue comprised 25% of
revenue, or $3.0 million, most of which related to the Alcatel-Lucent Source
Code License agreement. Excluding the global Alcatel-Lucent Source Code
License agreement, sales outside the Americas were 10% of total sales versus
11% in the same period in 2007.
    Gross margin was $9.5 million (81% of revenue) versus $8.5 million (86%
of revenue) in Q2 2007. The lower gross margin reflects a higher portion of
services revenue. The expansion of professional services and the delivery of
an integrated solution are expected to lower the Company's gross margin in
future periods, but result in higher revenue and higher operating margins.
    Operating profit rose 63% to $1.2 million, or 10% of revenue, compared to
$0.7 million, or 7% of revenue, in Q2 2007. Net earnings for the three months
ended June 30, 2008 was $1.3 million, or $0.05 per diluted share, compared to
$0.4 million, or $0.02 per diluted share, in the prior year period.
    Cash at the end of June 30, 2008 was $39.3 million compared with
$42.2 million at March 31, 2008. The $3.0 million net cash outflow was
impacted by an increase in working capital of $4.0 million, which was
partially offset by net earnings of $1.3 million. The increase in working
capital was mainly due to work on the integrated solution for Verizon
Wireless.
    For the first half of 2008, revenue amounted to $20.4 million compared to
$18.4 million in the prior year period, representing an increase of 11% (26%
in common currency). Operating expenses increased $2.3 million, or 16%, mainly
due to a $2.1 million increase in R&D. This led to an operating loss of
$0.7 million compared to an operating profit of $1.0 million for the six
months ended June 30, 2007. Net earnings were $0.6 million, or $0.02 per
diluted share, versus $0.6 million, or $0.03 per diluted share, in the first
half of 2007.

    Outlook

    Bridgewater's business is driven by key market trends which continue to
be strong. Smart devices, such as the iPhone, are leading to significant
growth in the use of wireless data applications. In order to facilitate higher
broadband use, telecom providers are expanding bandwidth with the roll-out of
broadband 3G networks and the introduction of 4G networks. All of this
translates into substantial growth in data services evidenced by the increase
in wireless data revenue from leading wireless providers.
    The Company continues to follow its three-pronged growth strategy to take
advantage of these market trends.

    
    -   Extend portfolio and solutions

        The development of an integrated solution has been the most
        significant portfolio extension so far and was validated by Verizon
        Wireless in June with an initial order valued at $30 million with
        broader market availability of this solution in 2009. The company is
        also expanding into policy management which is expected to take on an
        increasing importance.

    -   3G to 4G network evolution

        The contract with Sprint supports this growth initiative as
        Bridgewater has been chosen to extend its services from Sprint's
        3G network to its XOHM 4G WiMAX network. In addition to progress with
        other WiMax carriers globally, we have made inroads in the 3G GSM
        market with 4 customer deployments to date. We continue to invest in
        product development to support evolution to 4G/LTE.

    -   Expand outside North America

        To effectively market on a global scale, Bridgewater has partnered
        with global channel partners such as Alvarion, Motorola and Nortel.
    

    Based on the first half results and the outlook for the second half of
the year, the Company is now expecting revenue growth of approximately 25%,
which is likely to result in operating margins of approximately 8%.
    A complete set of financial statements and the management's discussion
and analysis for the three months ended June 30, 2008 can be found at
www.bridgewatersystems.com or at www.sedar.com.

    Conference Call and Webcast

    A conference call and webcast will be held today, Thursday, July 31,
2008, at 8:30 am ET to discuss this announcement. The telephone numbers to
access the conference call are 416-644-3425 or 1-800-590-1817. To access the
live webcast, please visit www.bridgewatersystems.com or www.newswire.ca for
directions. Participants will require Windows Media Player(TM) to listen to
the webcast.

    About Bridgewater Systems

    Bridgewater Systems develops subscriber-centric service control
solutions, including access control and policy management software for fixed,
mobile and converged networks. Using Bridgewater solutions, global service
providers can offer personalized services and experiences to their subscribers
by maintaining a real time policy that controls how subscribers interact with
networks, services, and their devices. Vendor-neutral and access network
agnostic, Bridgewater's carrier-class solutions help global service providers
launch new services faster, target them more accurately, and maximize profits
by creating a decision point that brings dynamic subscriber context to
controlling and merchandizing the subscriber interaction with IP-based
services. More than 100 leading service providers around the globe including
Verizon Wireless, Sprint Nextel, Bell Mobility and SmarTone-Vodafone trust
Bridgewater's technology to help them deliver world-class services.
    www.bridgewatersystems.com

    Certain statements in this release constitute forward-looking statements
or forward-looking information within the meaning of applicable securities
laws and are made pursuant to the "safe harbour" provisions of such laws.
Statements related to potential benefits of, and demand for, Bridgewater's
products including statements with respect to the features and benefits that
may be achieved through the use of Bridgewater's products and the relative
position of these products vis-à-vis competitive offerings in the industry are
forward-looking statements which are subject to certain assumptions, risks and
uncertainties. Readers are cautioned not to place undue reliance on such
statements. Risk factors that may cause the actual results, performance or
achievements of Bridgewater to differ materially from the results,
performance, achievements or developments expressed or implied by such
forward-looking statements can be found in the public documents filed by
Bridgewater from time to time with Canadian securities regulatory authorities.
Bridgewater assumes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.


    
    BRIDGEWATER SYSTEMS CORPORATION
    Consolidated Statements of Earnings, Comprehensive Earnings and Deficit
    For the three and six months ended June 30, 2008 and 2007
    (Expressed in Canadian dollars)
    (Unaudited)
    -------------------------------------------------------------------------

                           Three months ended           Six months ended
                      --------------------------- ---------------------------
                           June 30,      June 30,      June 30,      June 30,
                              2008          2007          2008          2007
                      ------------- ------------- ------------- -------------

    Revenue           $ 11,795,519  $  9,859,242  $ 20,361,026  $ 18,424,401

    Cost of sales        2,278,992     1,406,414     4,054,279     2,738,977
    -------------------------------------------------------------------------

    Gross margin         9,516,527     8,452,828    16,306,747    15,685,424
    -------------------------------------------------------------------------

    Expenses
      Sales and
       marketing         3,207,669     3,483,504     6,496,501     7,047,117
      Research and
       development       4,039,713     3,458,735     8,383,814     6,269,338
      General and
       administration    1,017,619       728,583     2,014,651     1,298,990
      Stock-based
       compensation         56,042        49,031        96,768        99,531
    -------------------------------------------------------------------------

                         8,321,043     7,719,853    16,991,734    14,714,976
    -------------------------------------------------------------------------

    Earnings (loss)
     before undernoted
     items               1,195,484       732,975      (684,987)      970,448

    Foreign exchange
     (loss) gain          (257,770)     (517,788)      550,631      (640,628)
    Interest and
     other income          321,967       135,426       711,502       294,007
    -------------------------------------------------------------------------

    NET EARNINGS AND
     COMPREHENSIVE
     EARNINGS            1,259,681       350,613       577,146       623,827

    DEFICIT,
     BEGINNING OF
     PERIOD            (16,838,187)  (18,625,296)  (16,155,652)  (18,898,510)
    -------------------------------------------------------------------------

    DEFICIT, END OF
     PERIOD           $(15,578,506) $(18,274,683) $(15,578,506) $(18,274,683)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per
     share - basic    $       0.06  $       0.02  $       0.03  $       0.03

    Net earnings
     per share -
     diluted          $       0.05  $       0.02  $       0.02  $       0.03

    Weighted average
     number of shares
     outstanding
     - basic            22,574,790    18,445,252    22,439,108    18,437,237

    Weighted average
     number of shares
     outstanding
     - diluted          24,093,597    20,679,734    24,216,463    20,708,042



    BRIDGEWATER SYSTEMS CORPORATION
    Consolidated Balance Sheets
    as at June 30, 2008 and December 31, 2007
    (Expressed in Canadian dollars)
    (Unaudited)
    -------------------------------------------------------------------------

                                                      June 30,   December 31,
                                                         2008           2007
                                                 -------------  -------------
    CURRENT ASSETS

      Cash and cash equivalents                  $ 39,271,815   $ 28,571,239
      Note receivable                                       -     10,000,000
      Accounts receivable                           7,783,996     10,929,411
      Investment tax credits receivable                     -      1,667,978
      Unbilled receivables                          5,157,962      5,321,664
      Work in process                               5,790,726              -
      Prepaid expenses and other assets             1,727,566        678,245
      Future income tax asset                       2,810,000      1,993,000
    -------------------------------------------------------------------------

                                                   62,542,065     59,161,537

    FUTURE INCOME TAX ASSET                         5,690,000      6,507,000
    CAPITAL ASSETS                                  4,110,221      3,817,480
    -------------------------------------------------------------------------

                                                 $ 72,342,286   $ 69,486,017
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CURRENT LIABILITIES

      Accounts payable and accrued liabilities     10,192,207      3,223,544
      Deferred revenue                              8,954,950     14,244,055
    -------------------------------------------------------------------------

                                                   19,147,157     17,467,599
    -------------------------------------------------------------------------

    SHAREHOLDERS' EQUITY

      Share capital                                68,037,212     67,477,616
      Contributed surplus                             736,423        696,454
      Deficit                                     (15,578,506)   (16,155,652)
    -------------------------------------------------------------------------

                                                   53,195,129     52,018,418
    -------------------------------------------------------------------------

                                                 $ 72,342,286   $ 69,486,017
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    BRIDGEWATER SYSTEMS CORPORATION
    Consolidated Statements of Cash Flows
    For the three and six months ended June 30, 2008 and 2007
    (Expressed in Canadian dollars)
    (Unaudited)
    -------------------------------------------------------------------------

                           Three months ended           Six months ended
                      --------------------------- ---------------------------
                           June 30,      June 30,      June 30,      June 30,
                              2008          2007          2008          2007
                      ------------- ------------- ------------- -------------

    NET INFLOW (OUTFLOW)
     OF CASH RELATED TO
     THE FOLLOWING
     ACTIVITIES:

      OPERATING
        Net earnings  $  1,259,681  $    350,613  $    577,146  $    623,827
        Items not
         affecting
         cash
          Stock-based
           compensation     56,042        49,031        96,768        99,531
          Foreign
           exchange
           loss (gain)     249,516       251,060       (10,904)      337,946
          Amortization
           of capital
           assets          315,310       293,923       612,585       547,448
    -------------------------------------------------------------------------

                         1,880,549       944,627     1,275,595     1,608,752

        Changes in
         non-cash
         operating
         working
         capital items  (4,026,886)   (4,156,907)     (183,394)   (8,103,519)
    -------------------------------------------------------------------------

                        (2,146,337)   (3,212,280)    1,092,201    (6,494,767)
    -------------------------------------------------------------------------

      INVESTING
        Issuance of
         note receivable         -              -            -   (12,000,000)
        Repayment of
         note receivable         -    12,000,000    10,000,000    12,000,000
        Purchases of
         capital assets   (851,985)     (206,758)     (905,326)     (547,425)
    -------------------------------------------------------------------------

                          (851,985)   11,793,242     9,094,674      (547,425)
    -------------------------------------------------------------------------

      FINANCING
        Proceeds from
         issuance of
         common shares     294,911        25,966       569,355        70,522
        Share issuance
         costs                   -             -       (66,558)            -
    -------------------------------------------------------------------------

                           294,911        25,966       502,797        70,522
    -------------------------------------------------------------------------

    Foreign exchange
     (loss) gain on
     cash held in
     foreign currency     (249,516)     (251,060)       10,904      (337,946)
    -------------------------------------------------------------------------

    NET CASH (OUTFLOW)
     INFLOW             (2,952,927)    8,355,868    10,700,576    (7,309,616)

    CASH AND CASH
     EQUIVALENTS,
     BEGINNING OF
     PERIOD             42,224,742     5,528,774    28,571,239    21,194,258
    -------------------------------------------------------------------------

    CASH AND CASH
     EQUIVALENTS,
     END OF PERIOD    $ 39,271,815  $ 13,884,642  $ 39,271,815  $ 13,884,642
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary
     information:

      Cash on hand and
       bank balances  $ 11,847,359  $  3,445,944  $ 11,847,359  $  3,445,944
      Short-term
       investments      27,424,456    10,438,698    27,424,456    10,438,698
    -------------------------------------------------------------------------

      Total cash
       and cash
       equivalents    $ 39,271,815  $ 13,884,642  $ 39,271,815  $ 13,884,642
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Interest
       received       $    321,967  $    127,548  $    711,502  $    285,612
    





For further information:

For further information: Investor Relations, The Equicom Group Inc.,
Vanessa Beresford, Craig Armitage, vberesford@equicomgroup.com,
carmitage@equicomgroup.com, (416) 815-0700; Bridgewater Systems, Kim Butler,
Chief Financial Officer, kim.butler@bridgewatersystems.com, (613) 591-9104 ext
6023

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