Sandvine Reports Q4 2016 Results

Company increases quarterly dividend

WATERLOO, ON, Jan. 12, 2017 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $27.0 million for its fourth quarter of 2016, net income of $2.0 million, or $0.02 per diluted share, and EBITDA1 of $4.7 million, or $0.03 per diluted share. The company also announced an increase in its quarterly dividend to C$0.02 per common share, or C$0.08 annualized (from C$0.0175 per common share, or C$0.07 annualized). 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

Q4
2016

Q4
2015

 

Change

Revenue

27.0

35.0

-23%

Gross Margin percent

77%

80%

-3pp

Expenses2

17.6

3.9

351%

Net Income3

2.0

25.2

-92%

Diluted Earnings per Share

0.02

0.17

-91%





EBITDA1

4.7

25.6

-82%

Diluted EBITDA1 per Share

0.03

0.17

-80%


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

2 Q4-15 Research and development expenses were reduced by $16.0 million as a result of the recognition of deferred tax assets related to the recognition of SR&ED ITCs.

3 In addition to the item in note 2, the Q4 2015 amount includes a $1.6 million current income tax recovery related to the recognition of deferred tax assets.

 

Sandvine's revenue for fiscal 2016 was $120.7 million (FY 2015: $123.3 million) and EBITDA1 was $24.4 million (FY 2015: $46.0 million), or $0.17 per diluted share (FY 2015: $0.31). Fiscal 2015 EBITDA1 included $16.0 million ($0.11 per diluted share) related to the recognition of deferred tax assets as well as $2.8 million ($0.02 per diluted share) related to a one-time gain on sale of a private company investment. Sandvine's net income for fiscal 2016 was $13.1 million, or $0.09 per diluted share.

Other Q4 2016 highlights:

  • Revenue by access technology market: wireless 64%; fixed telco 21%; fixed cable 13%; other 2%
  • Revenue by geography: EMEA 38%; NA 26%; CALA 18%; APAC 18%
  • Revenue by sales channel: reseller 56%; direct 44%
  • Cash and investments: $133.0 million
  • Customers: Won 16 new customers

"While market conditions didn't support revenue growth, 2016 was our fourth consecutive year of profitability.  During the year, we developed innovative new functionality and products that increase the value of our solutions for customers. Also, our strong cash balance and profitability supported the acquisition of our TCP Accelerator product, the ongoing repurchase of our stock, and the introduction of our quarterly dividend, which we increased today," said Dave Caputo, Sandvine's President and CEO.

Since the last quarterly results announcement, Sandvine:

  • Launched advanced quality of experience metrics for encrypted video that will allow communications service providers (CSPs) to accurately measure the many factors that impact a subscriber's experience when watching encrypted video
  • Announced multiple new features for its Network Security product, including QuickSand, a feature which protects networks using "decoy and deception" techniques to hinder malicious attackers by increasing the costs of the attacks and preventing their success
  • Initiated a normal course issuer bid to purchase of up to 12,481,533 common shares of the company, representing approximately 10% of the public float
  • Won orders totaling over $6 million from a converged fixed/mobile CSP, including the PTS 32000 and related to subscriber engagement, traffic management, innovative charging plans and network security use cases
  • Won orders totaling over $4 million from a Tier 1 converged mobile/fixed CSP, including the PTS 32000 and related to application-based pricing and business intelligence use cases
  • Published two new whitepapers that explore the revenue assurance and fraud prevention challenges faced by CSPs looking to implement zero-rated data plans
  • Released its latest Global Internet Phenomena Report, which revealed that video on mobile networks in Africa has doubled in the last year

DIVIDEND PROGRAM
Sandvine also announced today that its Board of Directors has approved a dividend of C$0.02 per common share, payable on February 13, to shareholders of record as of the close of business on January 25.

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: 44050129
Webcast: www.sandvine.com/investors

A replay of the Q4 2016 results call will be available at (888)-843-7419 (passcode 44050129#) at 11:00 a.m. ET today through January 26, 2017.

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

Twelve month period ended

Amounts in US$ thousands

November 30,
 2016
$

November 30,
 2015
$

November 30,
 2016
$

November 30,
 2015
$






Net income  **

2,043

25,178

13,121

41,278


Adjustment for







Interest, net *

(147)

(68)

(467)

(358)



Taxes

1,124

(1,193)

5,153

(377)



Depreciation

1,033

1,095

3,987

3,958



Amortization

689

604

2,654

1,501

EBITDA

4,742

25,616

24,448

46,002

Basic EBIDTA per share **

0.036

0.175

0.176

0.312






Diluted earnings per share

0.015

0.168

0.092

0.273

Impact on diluted earnings per share of non-IFRS measures

0.020

0.003

0.080

0.031






Diluted EBITDA per share **

0.035

0.171

0.172

0.304


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


** Net income for the three month period and year ended November 30, 2015  included the recognition of $17.6 million related to the recognition of deferred tax assets with $16.0 million by a reduction of its research and development expenses in the fourth quarter of 2015. The impact of this recognition of deferred tax assets on Basic EBITDA per share and Diluted EBITDA per share was $0.109 and $0.107, and $0.109 and $0.106, respectively, for the three month period and year ended November 30, 2015.

 

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 news release, constitute "forward-looking information" and "forward looking statements" (collectively, "forward looking statements") within the meaning of applicable Canadian securities laws and are based on assumptions, expectations, estimates and projections as of the date of this news 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. The words "plans", "expects", "projected", "estimated", "forecasts", "anticipates", "intend", "guidance", "outlook", "potential", "prospects", "seek", "aim", "strategy", "targets" or "believes", or variations of such words and phrases or statements that certain future conditions, actions, events or results "will", "may", "could", "would", "should", "might" or "can", or negative versions thereof, "occur", "continue" or "be achieved", and other similar expressions, identify forward-looking statements. 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, outside of the Company's control and are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being entirely or partially incorrect or untrue. Forward looking statements contained in this news release are based on various assumptions, including, but 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; the Company's ability to achieve its growth strategy; the demand for the Company's products and fluctuations in future revenues; target blended gross margin; target business model and assumptions; 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; ability of the Company to declare and pay quarterly dividends; and that the risk factors noted below, collectively, do not have a material impact on the Company's business, operations, revenues and/or results. By their nature, forward-looking statements are 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 2016 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. 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 2017 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 subject to government regulations concerning the sale and export of its products outside of North America and its failure or inability to comply with these regulations could materially restrict the Company's operations and subject it to penalties;
  • The Company is dependent on effectively managing 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 the common shares of the Company (the "Common Shares") is subject to the discretion of the board of directors of the Company (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 news 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)


As at


November 30,
 2016
$

November 30,
 2015
$

Assets



Current assets



Cash

14,922

8,826

Investments

118,064

136,515

Accounts receivable

33,829

41,939

Inventory

5,580

8,728

Other current assets

3,484

4,340


175,879

200,348

Non current assets



Plant and equipment

9,812

9,753

Intangible assets and goodwill

11,668

9,651

Deferred tax assets

18,679

20,706

Investment in associates

3,732

Other assets

353


44,244

40,110





220,123

240,458

Liabilities



Current liabilities



Trade and other payables

18,604

20,652

Deferred revenue

16,243

14,786


34,847

35,438

Non current liabilities



Deferred revenue

3,713

2,231

Other liabilities

1,188

Deferred tax liabilities

845

1,112


5,746

3,343





40,593

38,781

Shareholders' equity



Share capital

125,944

139,084

Contributed surplus

17,961

16,577

Accumulated comprehensive loss

(231)

(833)

Retained earnings

35,856

46,849


179,530

201,677





220,123

240,458

 

Sandvine Corporation
Consolidated Statements of Income

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



For the three month period ended


For the twelve month period ended


November 30,
 2016
$

November 30,
 2015
$


November 30,
 2016
$

November 30,
 2015
$

Revenue






Product

15,100

23,128


73,879

79,294

Service

11,853

11,911


46,854

44,037


26,953

35,039


120,733

123,331

Cost of sales






Product

2,997

4,198


16,075

16,493

Service

3,270

2,842


12,990

10,943


6,267

7,040


29,065

27,436

Gross margin

20,686

27,999


91,668

95,895

Expenses






Sales and marketing

8,893

10,325


37,528

36,860

Research and development

5,436

(9,403)


22,881

7,974

General and administrative

3,297

2,980


13,357

13,234

Other losses, net

3


2

23


17,626

3,905


73,768

58,091

Income from operations

3,060

24,094


17,900

37,804

Finance income

147

68


467

358

Foreign exchange gain (loss)

(112)

(177)


(165)

(39)

Other income


2,778


35

(109)


302

3,097

Share of profit of equity accounted investees, net of tax

72


72

Income before provision for income taxes

3,167

23,985


18,274

40,901

Current and deferred provision for income taxes

1,124

(1,193)


5,153

(377)

Net income for the period

2,043

25,178


13,121

41,278







Basic earnings per share

0.015

0.172


0.095

0.280

Diluted earnings per share

0.015

0.168


0.092

0.273

 

Sandvine Corporation
Consolidated Statements of Cash Flows

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


For the three month period ended


For the twelve month period ended


November 30,

2016

$

November 30,

2015

$


November 30,

2016

$

November 30,

2015

$

Cash provided by (used in)












Operating activities






Net income for the period

2,043

25,178


13,121

41,278

Items not affecting cash







Amortization of intangible assets

689

604


2,654

1,501


Depreciation of plant and equipment

1,033

1,095


3,987

3,958


Unrealized foreign exchange (gains) losses

247

(6)


259

(214)


Gain on sale of investment

-

-


-

(2,778)


Stock-based compensation

573

503


2,273

2,050


Deferred recovery (provision) for income taxes

397

(1,644)


(623)

(1,644)


Investment tax credit (increase) decrease

(387)

(16,000)


2,354

(16,000)


Share of profit of equity accounted investees, net of tax

(72)

-


(72)

-


Other

(40)

(14)


(73)

(32)


4,483

9,716


23,880

28,119







Changes in non-cash working capital balances

(1,615)

(15,045)


13,964

(13,112)

Income tax paid

(303)

(226)


(1,666)

(1,563)


2,565

(5,555)


36,178

13,444

Investing activities






Purchase of plant, equipment and intangible software assets

(1,208)

(1,228)


(4,121)

(5,860)

Purchase of short term investments

(171)

(90)


(549)

(16,887)

Proceeds of short term investments

2,000

9,500


19,000

17,500

Proceeds from sale of investment

-

-


462

2,827

Acquisition of business

-

-


(3,500)

(6,211)

Investment in associates

(3,660)

-


(3,660)

-


(3,039)

8,182


7,632

(8,631)

Financing activities






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

108

90


1,045

2,128

Common share repurchase

(1,873)

(5,813)


(29,763)

(8,100)

Common shares purchased under the share unit plan

(65)

(899)


(1,385)

(3,475)

Dividends paid

(1,633)

-


(7,352)

-

Repayment of acquired bank loan

-

-


-

(336)


(3,463)

(6,622)


(37,455)

(9,783)







Effect of foreign exchange on cash

(247)

(39)


(259)

(186)







Net increase (decrease) in cash during period

(4,184)

(4,034)


6,096

(5,156)







Cash – Beginning of period

19,106

12,860


8,826

13,982







Cash – End of period

14,922

8,826


14,922

8,826







 

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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