Sandvine reports Q3 2015 results

WATERLOO, ON, Oct. 8, 2015 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $27.3 million for its third quarter of 2015. The result is in line with the Company's estimate published on September 9. Net income for the quarter was $3.0 million. All results are reported in U.S. dollars under International Financial Reporting Standards (IFRS), unless otherwise specified.

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





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

Q3
2015

Q3
2014

Change

Revenue

27.3

27.9

-2%

Gross Margin percent

80%

78%

2pp

Expenses1

18.9

15.0

26%

Net Income

3.0

3.1

-3%

Diluted Earnings Per Share

0.019

0.020

-5%

1 Q3 2014 amount benefited from by $3.2 million of Investment Tax Credits

Other Q3 2015 results highlights:

  • Revenue by access technology market: wireless 62%; DSL 20%; cable 17%; other 1%
  • Revenue by geography: EMEA 37%; NA 27%; CALA 24%; APAC 12%
  • Revenue by sales channel: reseller 53%; direct 47%
  • Cash and investments: $158.8 million
  • Customers: Won eight new customers. A further five new operators customers came through Sandvine's acquisition of Momac.

"I am pleased that Sandvine continues to report profitability within our target range," said Dave Caputo, Sandvine's President and CEO. "We remain confident that our strategy is focused on the right opportunities and that we are making progress on each. We have our first customer for Sandvine's Cloud Services Policy Controller. We just reported that our Virtual Series has the highest performance of any like product in our industry. Finally, we're excited about our recent purchase of MoMac and we will continue to look at acquisition opportunities."

Since the last quarterly results announcement, Sandvine:

  • Achieved over 1.1 terabits per second throughput from its PTS Virtual Series, making Sandvine the first network policy control vendor to reach this performance level and signaling that NFV-based network policy control is a reality for operators of any size
  • Signed Ubiscope in South Korea as the first customer for Sandvine's Cloud Services Policy Controller, a hosted version of Sandvine's virtual series products that lets businesses view, control and protect traffic in their own networks
  • Acquired MoMac, a Netherlands-based company that sells cloud-based, customer engagement solutions to mobile operators. Momac's products will be integrated with Sandvine OutReach to significantly enhance the product's customer engagement capabilities
  • Published the latest Global Internet Phenomena Report, covering Asia-Pacific & Europe, including discussion of the impact of Netflix's and Apple Music's ongoing expansions in those regions

CONFERENCE CALL
The Company will discuss the financial results and business outlook on a conference call at 8:30 a.m. Eastern time today.

Toll-free North America: (866)-215-5508 | Confirmation Number: 40817566
Webcast: www.sandvine.com/investors

A replay of the Q3 2015 results call will be available at: (888)-843-7419 (passcode 40817566#) today at 11:00 a.m. ET through October 22, 2015.

ABOUT SANDVINE
Sandvine's network policy control solutions add intelligence to fixed, mobile and converged communications service provider networks to enable services that can increase revenue and reduce network costs. Powered by Sandvine's Policy Engine and SandScript policy language, Sandvine's networking equipment provides end-to-end policy control functions including traffic classification, and policy decision and enforcement across the data, control and business planes.  Sandvine's products provide actionable business insight, the ability to deploy new subscriber services and tools to optimize traffic while enhancing subscriber Internet quality of experience.

Sandvine's network policy control solutions are deployed in more than 250 networks in over 90 countries, serving hundreds of millions of data subscribers worldwide, www.sandvine.com.

CAUTION REGARDING FORWARD LOOKING INFORMATION
Certain statements in this press release constitute "forward-looking information" within the meaning of applicable Canadian securities laws and are based on expectations, estimates and projections as of the date of this press release.  Forward-looking statements include, without limitation, statements with respect to projected revenues, earnings, growth rates, targets, revenue mix and product plans and the Company's future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements are necessarily based upon management's perceptions of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by the Company as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being incorrect. In addition to the various factors and assumptions set forth in this press release, the material factors and assumptions used to develop the forward-looking information include, but are not limited to the following: the overall Network Policy Control market including reliance on major customers; adoption of Virtual Series solutions; the requirement for increasingly innovative product solutions; its growth strategy and the need for increasing investment in sales and marketing efforts; the demand for the Company's products and fluctuations in future revenues; target blended gross margin; expectations of growth in the DSL and Wireless markets; expectations for DSO; sufficiency of current working capital to support future operating and working capital requirements; the stability of general economic and market conditions; currency exchange rates and interest rates; equity and debt markets continuing to provide the Company with access to capital; and the Company's continued compliance with third party intellectual property rights; foreign exchange hedging; and that the risk factors noted below, collectively, do not have a material impact on the Company.

By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. 

Known and unknown risk factors, many of which are beyond the control of the Company, 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.  Such risk factors include, but are not limited to each of the following, and those factors which are discussed in the Company's 2014 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 as well as the timing of when an order meets the Company's revenue recognition criteria;

  • The Company's gross margins may fluctuate from quarter to quarter and year to year 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. In addition, the Company extends credit to its customers and resellers by virtue of agreed upon payment terms and could be exposed to collection risk on its receivables particularly if any key customer or key reseller were to face financial challenges. The Company's reseller partners may also offer their own products which are competitive with the Company's products;

  • By selling its products in certain markets through resellers, the Company is able to avoid certain costs related to operating in those markets including but not limited to local support costs, costs of maintaining a local legal entity, administration costs, and logistics. Should the Company choose or be required to sell direct in these markets (due to customer preference, termination of a reseller relationship or other reasons) the cost advantages described will no longer be available to the Company which could result in an increase in operating costs;

  • 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 the emergence of new technologies and new approaches to network architecture 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. If the Company is unable to adapt its offerings in response to these trends it could have a material impact on the ability of the Company to market its solutions;

  • 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 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;

  • With the adoption of network functions virtualization ("NFV") and software defined networks ("SDN"), the market in which Sandvine operates may face a shift in how some of its customers purchase the Company's products. It is the Company's intention to continue to offer and develop Network Policy Control products for customer networks architected for NFV or SDN. These products will run on commercial off-the-shelf hardware. The introduction of these product offerings could see a shift in the Company's pricing practices from perpetual based software licenses to term based software licenses. While the timing and impact of this shift is not anticipated to materially impact the Company's results in 2015, it is difficult for the Company to accurately predict. As such, depending on the rate of adoption, the Company could experience a loss or delay in hardware and/or software revenue and reduced profits in 2015 or beyond;

  • The Company is dependent on certain third party sub-assembly manufacturers in its supply chain and any disruption in the operations or quality of those suppliers or any increase in expected lead times from those suppliers could result in lost or delayed revenue and/or reduced profits;

  • The majority of the Company's operating expenses are denominated in Canadian dollars, U.S. dollars, and Indian rupees. The Company's earnings are impacted by fluctuations in the exchange rates between the U.S. dollar and these currencies;

  • The Company operates in various jurisdictions throughout the world and generates revenues through its international sales efforts. The Company's financial results may be impacted by political and economic developments of a particular country or geography. The Company has operations in India and Hong Kong, both considered by management to be emerging markets. The operations in India are predominantly a contract research and development facility and the Company conducts business in Hong Kong through a branch sales representative office;

  • The Company is dependent on effectively managing the acquisition and integration of MoMac B.V. Acquisitions present a number of risks which are disclosed in the Company's 2014 Annual Information Form. These risks or the inability of the Company to successfully realize upon the intended benefits of an acquisition could have a material adverse effect on its business, financial condition and results of operations.

  • These risk factors are not intended to represent a complete list of the factors that could affect the Company and the reader is cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management's expectations and plans relating to the future. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking information, except to the extent required by applicable law.

Sandvine Corporation

Consolidated Statements of Financial Position

(in thousands of United States dollars, except share and per share data) (unaudited)



    As at


August 31,
2015
$

November 30,
2014
$

Assets






Current assets



Cash

7,834

8,956

Short term investments 

150,951

142,154

Accounts receivable 

28,253

30,667

Inventory 

8,218

8,207

Other current assets

3,857

2,718


199,113

192,702

Non current assets



Plant and equipment 

9,503

9,055

Intangible assets

7,227

2,893

Goodwill

3,001

-

Deferred tax asset

1,090

212

Other assets

-

511


20,821

12,671





219,934

205,373




Liabilities






Current liabilities



Trade and other payables

16,390

23,864

Current portion of deferred revenue

19,084

15,274


35,474

39,138

Non current liabilities



Deferred revenue

1,559

1,694

Deferred tax liability

1,200

-


2,759

1,694





38,233

40,832

Shareholders' equity






Share capital 

142,420

139,473

Contributed surplus

16,180

16,209

Accumulated comprehensive loss 

(1,337)

(590)

Retained earnings

24,438

9,449


181,701

164,541





219,934

205,373


Sandvine Corporation

Consolidated Statements of Income

(in thousands of United States dollars, except share and per share data) (unaudited)






For the three month period
ended


For the nine month period
ended


August 31,
2015
$

August 31,
2014
$


August 31,
2015
$

August 31,
2014
$







Revenue






Product

16,625

15,911


56,166

57,950

Service

10,640

11,986


32,126

31,220


27,265

27,897


88,292

89,170

Cost of sales






Product

2,822

2,640


12,295

10,310

Service

2,581

3,430


8,101

9,752


5,403

6,070


20,396

20,062







Gross margin

21,862

21,827


67,896

69,108







Expenses






Sales and marketing

9,273

8,124


26,535

24,310

Research and development

5,761

3,208


17,377

15,562

General and administrative

3,818

3,674


10,254

9,915

Other losses, net

15

3


20

21


18,867

15,009


54,186

49,808







Income from operations

2,995

6,818


13,710

19,300







Finance income

108

82


290

198

Foreign exchange gains (losses)

23

(13)


138

(325)

Other income

-

-


2,778

-







Income before provision for income taxes

3,126

6,887


16,916

19,173







Current provision for income taxes

175

3,832


816

4,248







Net income for the period

2,951

3,055


16,100

14,925







Earnings per share






Basic earnings per share

0.020

0.020


0.109

0.102

Diluted earnings per share

0.019

0.020


0.106

0.098







Sandvine Corporation

Consolidated Statements of Cash Flows

(in thousands of United States dollars, except share and per share data) (unaudited)






For the three month period
ended


For the nine month period
ended


August 31,
2015
$

August 31,
2014
$


August 31,
2015
$

August 31,
2014
$

Cash provided by (used in)












Operating activities






Net income for the period

2,951

3,055


16,100

14,925

Items not affecting cash







Amortization of intangible assets

376

284


897

838


Depreciation of plant and equipment

926

1,080


2,863

3,350


Unrealized foreign exchange (gains) losses

(263)

16


(208)

98


Gain on sale of investment

-

-


(2,778)

-


Stock-based compensation

538

395


1,547

1,334


Other

40

(33)


(18)

(21)


4,568

4,797


18,403

20,524

 

Changes in non-cash working capital balances

(337)

2,020


596

20,951


4,231

6,817


18,999

41,475

Investing activities






Purchase of plant, equipment and intangible software assets

(1,089)

(620)


(4,632)

(3,462)

Purchase of short term investments

(4,112)

(5,087)


(16,797)

(58,203)

Proceeds of short term investments

8,000

-


8,000

-

Proceeds from sale of investment

-

-


2,827

-

Acquisition of business

(6,211)

-


(6,211)

-


(3,412)

(5,707)


(16,813)

(61,665)

Financing activities






Repayment of government grants

-

-


-

(4,153)

Proceeds from the issuance of shares under the employee stock option plan

512

201


2,038

1,762

Common shares issued for cash, net of transaction costs

-

-


-

28,269

Common share repurchase

(380)

-


(2,287)

-

Common shares purchased under the share unit plan

(320)

(353)


(2,576)

(2,531)

Repayment of acquired bank loan

(336)

-


(336)

-


(524)

(152)


(3,161)

23,347







Effect of foreign exchange on cash

(120)

(33)


(147)

(27)







Net increase (decrease) in cash during period

175

925


(1,122)

3,130







Cash – Beginning of period

7,659

7,659


8,956

5,454







Cash – End of period

7,834

8,584


7,834

8,584







SOURCE Sandvine

For further information: INVESTOR CONTACT: Rick Wadsworth, Sandvine, +1 519 880 2400 ext. 3503, rwadsworth@sandvine.com; MEDIA CONTACT: Dan Deeth, Sandvine, +1 519 880 2232, ddeeth@sandvine.com

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