Sandvine Reports Q3 2016 Results

Company announces quarterly dividend

WATERLOO, ON, Oct. 6, 2016 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $26.1 million for its third quarter of 2016, net income of $1.5 million, or $0.01 per diluted share, and EBITDA of $3.8 million, or $0.03 per diluted share.

All results are reported in U.S. dollars under International Financial Reporting Standards (IFRS), unless otherwise specified.

FINANCIAL AND OPERATIONAL HIGHLIGHTS




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

Q3
2016

Q3
2015

 

Change

Revenue

26.1

27.3

-4%

Gross Margin percent

77%

80%

-3pp

Expenses

17.9

18.9

-5%

Net Income

1.5

3.0

-50%

Diluted Earnings per Share

0.01

0.02

-47%





EBITDA1

3.8

4.3

-12%

Diluted EBITDA1 per Share

0.03

0.03

-4%

1 EBITDA is a non-IFRS financial measure. See NON-IFRS FINANCIAL MEASURES below.

 

Other Q3 2016 results highlights:

  • Revenue by access technology market: wireless 60%; DSL 22%; cable 17%; other 1%
  • Revenue by geography: EMEA 36%; NA 31%; CALA 21%; APAC 12%
  • Revenue by sales channel: direct 61%; reseller 39%
  • Cash and investments: $139.0 million
  • Customers: Won 9 new customers
  • Year-to-date results: revenue is up 6%, net income is down 31%, largely due to the recognition of certain deferred, non-cash taxes, and EBITDA is down 4% (21% of revenue).

"We believe that Q3 revenue reflects the seasonality that appears to be typical in our business. For the year to date, revenue is up, and EBITDA is 21% of revenue," said Dave Caputo, Sandvine's President and CEO. "For the second consecutive quarter and second time in our history, Sandvine had no 10%-plus customers in the quarter. While large deals will remain an important part of our growth ahead, we are pleased with the ongoing diversification of our revenue, and remain enthusiastic about the size and quality of our funnel."

Since the last quarterly results announcement, Sandvine:

  • Launched the Traffic Steering Engine, a new product that solves the challenges that face communications service providers looking to deploy Network Functions Virtualization and Service Function Chaining at a large scale
  • Announced that its customer, ClearSky, now has over a dozen deployments of its Total Traffic Manager product, which integrates Sandvine's Business Intelligence and Traffic Optimization products. Over half of the deployments are fully virtualized
  • Published a Global Internet Phenomena Spotlight, "Inside the Connected Home," which revealed that the average household in North America now has over seven active devices in use each day and that laptops and desktop PCs now represent less than 25% of total traffic on fixed access networks
  • Announced that Sandvine has enabled seven turnkey deployments of Free Basics by Facebook for its customer Digicel. Each deployment took less than a week thanks to a standard API between Sandvine and Free Basics
  • Announced that its customer VivaCell is using Sandvine's Subscriber Services products to launch plans that zero-rate Skype and others that zero-rate all traffic between 2:00 a.m. and 8:00 a.m.
  • Announced that its Virtual Series products are now certified for deployment on the Cisco Unified Computing System

DIVIDEND PROGRAM
Sandvine also announced today that its Board of Directors has approved a dividend of C$0.0175 per common share, payable on November 8, to shareholders of record as of the close of business on October 20.

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: (866)-215-5508 | Confirmation Number: 43463134
Webcast: www.sandvine.com/investors

A replay of the Q3 2016 results call will be available at (888)-843-7419 (passcode 43463134#) at 11:00 a.m. ET today through October 20, 2016.

ABOUT SANDVINE
Sandvine's network policy control solutions add intelligence to fixed, mobile and converged communications service provider networks, to increase revenue, reduce network costs and improve subscriber quality of experience. Our networking solutions perform end-to-end policy control functions, including traffic classification, policy decision and enforcement. Deployed as virtualized network functions or on Sandvine's purpose built hardware, the products provide actionable business insight, and the ability to deploy new consumer and business subscriber services, optimize and secure network traffic, and engage with subscribers.

Sandvine's network policy control solutions are deployed in more than 300 networks in over 100 countries, serving hundreds of millions of data subscribers worldwide. www.sandvine.com.

NON-IFRS FINANCIAL MEASURES
The following table provides a reconciliation of net income and related per share amounts to EBITDA and the related per share amounts ("EBITDA per share") for the periods indicated.





Three month period ended

Nine month period ended

Amounts in US$ thousands

August 31,
2016
$

August 31,
 2015
$

August 31,
 2016
$

August 31,
 2015
$



Net income

1,471


2,951


11,078


16,100


Adjustment for







Interest, net *

(188)


(108)


(406)


(290)



Taxes

801


175


4,029


816



Depreciation

1,020


926


2,954


2,863



Amortization

696


376


1,965


897

EBITDA

3,800


4,320


19,620


20,386

Basic EBIDTA per share

0.028

0.029

0.140

0.138






Diluted earnings per share

0.010

0.019

0.076

0.106

Impact on diluted earnings per share of non-IFRS measures

0.017

0.009

0.058

0.028

Diluted EBITDA per share

0.027

0.028

0.134

0.134


* Interest, net is defined as the aggregate of finance income and finance costs.

 

These non-IFRS financial measures, which are used internally by management to evaluate the Company's ongoing performance, exclude the impact of interest, taxes, depreciation and amortization (collectively referred to as "Excluded expenses").  The Company provides these non-IFRS financial measures as it is the Company's view that the Excluded expenses either (i) affect the comparability of results from period to period as the Excluded expenses are not part of its normal day-to-day operations or only impact the current or comparable period 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.  These non-IFRS measures are not recognized under IFRS and do not have standardized meanings prescribed by IFRS.  Therefore it is unlikely that these measures will be comparable to similarly titled measures reported by other issuers. Non-IFRS financial measures should be considered in the context of the Company's IFRS results.

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 assumption 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; the demand for the Company's products and fluctuations in future revenues; target blended gross margin; expectations of growth in the Wireless market; 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; declaration of quarterly dividends; 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 2015 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, the timing of customer purchase decisions, including the recent trend of slowing customer activity in the summer months, 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. In addition, direct sales to Tier 1 communications service providers (CSPs) involve risks that may not be present (or that are present to a lesser extent) while sales to smaller CSPs or through the reseller channel. These risks include but are not limited to increased purchasing power held by large customers, longer sales cycles, more complicated infrastructure requirements or more intense and time-consuming customer support practices;
  • 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 and sell 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 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 or laws might be appropriate with respect to how CSPs manage and charge for 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 a shift to NFV could impact the Company's short term revenues, the Company does not expect the sale of NFV solutions to be a material contributor to revenue in fiscal 2016. 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 2016 and 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, Euros 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 acquisitions and integrations. Acquisitions present a number of risks which are disclosed in the AIF. 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.
  • The Company's policy of paying dividends on its Common Shares is subject to the discretion of the Board and is dependent on, among other matters, the Company's financial position, results of operations, available cash, cash requirements and alternative uses of cash.
  • The Company may experience interruptions in its information systems on which its global operations depend. Further, the Company may face attempts by others to gain unauthorized access through the Internet to its information technology systems, to intentionally hack, interfere with or cause physical or digital damage to or failure of such systems (such as significant viruses or worms), which attempts the Company may be unable to prevent. The Company could be unaware of an incident or its magnitude and effects until after it is too late to prevent it and the damage it may cause. Any security breaches, unauthorized access, unauthorized usage, virus or similar breach or disruption could result in loss of confidential information, personal data and customer content, damage to the Company's reputation, early termination of contracts, litigation, regulatory investigations or other liabilities.
  • The possibility that the Company's products may infringe the intellectual property rights of third parties and the potential exposure of the Company to a judgement for damages, royalties and injunctive relief precluding the sale or licensing of the Company's products.

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 statements, except to the extent required by applicable law. All of the forward-looking statements contained in this press release are qualified by these cautionary statements.

Sandvine Corporation
Consolidated Statements of Financial Position
(in thousands of United States dollars, except share and per share data) (unaudited)



As at


August 31,
 2016
$

November 30,
 2015
$

Assets




Current assets




Cash

19,106


8,826

Investments

119,893


136,515

Accounts receivable

32,588


41,939

Inventory

5,207


8,728

Other current assets

3,850


4,340


180,644


200,348

Non current assets




Plant and equipment

9,484


9,753

Intangible assets

6,836


6,650

Goodwill

5,491


3,001

Deferred tax assets

18,528


20,706

Other assets

352



40,691


40,110






221,335


240,458

Liabilities




Current liabilities




Trade and other payables

10,452


20,652

Deferred revenue

17,753


14,786


28,205


35,438

Non current liabilities




Deferred revenue

3,238


2,231

Other liabilities

1,062


Deferred tax liabilities

900


1,112






5,200


3,343






33,405


38,781

Shareholders' equity




Share capital

133,857


139,084

Contributed surplus

17,497


16,577

Accumulated comprehensive income (loss)

39


(833)

Retained earnings

36,537


46,849


187,930


201,677






221,335


240,458

 

 

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,
 2016
$

August 31,
 2015
$


August 31,
 2016
$

August 31,
 2015
$

Revenue







Product


13,222

16,625


58,779

56,166

Service


12,862

10,640


35,001

32,126



26,084

27,265


93,780

88,292

Cost of sales







Product


2,714

2,822


13,078

12,295

Service


3,297

2,581


9,720

8,101



6,011

5,403


22,798

20,396








Gross margin


20,073

21,862


70,982

67,896

Expenses







Sales and marketing


8,968

9,273


28,635

26,535

Research and development


5,621

5,761


17,445

17,377

General and administrative


3,322

3,818


10,060

10,254

Other losses, net


15


2

20



17,911

18,867


56,142

54,186








Income from operations


2,162

2,995


14,840

13,710








Finance income


188

108


406

290

Foreign exchange gain (loss)


(78)

23


(139)

138

Other income



2,778








Income before provision for income taxes


2,272

3,126


15,107

16,916








Current and deferred provision for income taxes


801

175


4,029

816








Net income for the period


1,471

2,951


11,078

16,100








Earnings per share







Basic earnings per share


0.011

0.020


0.079

0.109

Diluted earnings per share


0.010

0.019


0.076

0.106

 

 

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,
 2016
$

August 31,
 2015
$


August 31,
 2016
$

August 31,
 2015
$

Cash provided by (used in)












Operating activities






Net income for the period

1,471

2,951


11,078

16,100

Items not affecting cash







Amortization of intangible assets

696

376


1,965

897


Depreciation of plant and equipment

1,020

926


2,954

2,863


Unrealized foreign exchange loss (gains)

154

(263)


12

(208)


Gain on sale of investment


(2,778)


Stock-based compensation

548

538


1,700

1,547


Deferred recovery (provision) for income taxes

412


(1,020)


SR&ED ITCs

(192)


2,741


Other

41

40


(33)

(18)


4,150

4,568


19,397

18,403







Changes in non-cash working capital balances

1,271

(337)


14,216

596


5,421

4,231


33,613

18,999

Investing activities





Purchase of plant, equipment and intangible software assets

(676)

(1,089)


(2,913)

(4,632)

Purchase of short term investments

(183)

(4,112)


(378)

(16,797)

Proceeds from sale of short term investments

12,000

8,000


17,000

8,000

Proceeds from sale of investment

462


462

2,827

Acquisition of business

(6,211)


(3,500)

(6,211)


11,603

(3,412)


10,671

(16,813)

Financing activities






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

556

512


937

2,038

Common share repurchase

(15,898)

(380)


(27,889)

(2,287)

Common shares purchased under the share unit plan

(150)

(320)


(1,321)

(2,576)

Dividends paid

(1,882)


(5,719)

Repayment of acquired bank loan

(336)


(336)


(17,374)

(524)


(33,992)

(3,161)







Effect of foreign exchange on cash

(154)

(120)


(12)

(147)







Net increase (decrease) in cash during period

(504)

175


10,280

(1,122)

Cash– Beginning of period

19,610

7,659


8,826

8,956







Cash– End of period

19,106

7,834


19,106

7,834

 

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

RELATED LINKS
http://www.sandvine.com

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890