News Column

Sandvine reports Q2 2014 results

July 10, 2014

WATERLOO, ON, July 10, 2014 /CNW/ -Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $29.7 million for its second quarter of 2014, net income of $4.4 million and non-IFRS income of $4.8 million. All results are reported in U.S. dollars under International Financial Reporting Standards (IFRS), unless otherwise specified.

Other Q2 2014 highlights:

Revenue growth: up 26% compared to Q2 2013 •Revenue by access technology market: wireless 39%; DSL 33%; cable 28% •Revenue by geography: NA 37%; EMEA 31%; APAC 20%; CALA 12% •Revenue by sales channel: reseller 58%; direct 42% •Gross margin: 76% •Cash: Cash, cash equivalents and short-term investments balance: $144.6 millionCustomers: Won 7 new service provider customers

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

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

Q2

2014


Q2

2013




Change

Revenue

29.7

23.5

26%

Gross Margin percent

76%

74%

2pp

Expenses2

17.9

14.3

25%

Net Income

4.4

0.9

392%

Diluted Earnings Per Share

0.028

0.006

367%



Non-IFRS Income1



4.8



1.4



246%

Non-IFRS Diluted Earnings Per Share1

0.031

0.010

210%



1 See Table 1 below regarding non-IFRS financial measures

2 Q2 2013 expenses benefited from recording $3.3 million of government assistance.

Sandvine's year-to-date revenue grew by 26% over the comparable six-month period of 2013 to $61.3 million, while year-to-date net income grew by 358% to $11.9 million.

"I am pleased that we were able to grow revenue in the second quarter by 26%, with contributions coming so broadly across our customer base," said Dave Caputo, Sandvine's President and CEO.

Other recent business highlights include:

•Launched the Capacity Planning Dashboard for Sandvine's Network Analytics product, to easily identify and manage congested network resources •Released the Global Internet Phenomena Report 1H2014, which revealed how North Americans exhibiting cord cutter behavior are dominating network usage and how, just over two years after its launch, Netflix has become the second largest driver of traffic on fixed access networks in the UK and Ireland•Announced how Sandvine's Usage Managementsolution, is helping Smart Communications offer users service plans, such as Email, Chat, Photo and Social packages, in 15-minute, 3-hour or per-day unlimited access, for a low fixed price •Announced how the Sandvine Virtual Series, the fully virtualized version of the Sandvine platform, is being used by operators to develop, test and deploy their virtualization strategies

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: 37590807

Webcast: www.sandvine.com/investors

A replay of the call will be available at: (888)-843-7419 (passcode 37590807#) from 11:00 a.m. ET today through July 20, 2014.

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 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. 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 relating 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 chose 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 results 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 to 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 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 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, including but not limited to the economic and political climate in Argentina. If the current economic and/or political climate in Argentina continues or deteriorates it may negatively impact the Company's financial results including the ultimate collection of outstanding receivables.

Table 1

1. Non-IFRS Financial Measures

The following table provides a reconciliation of net income (loss) and related per share amounts to non-IFRS net income (loss) and the related per share amounts for the periods indicated. These non-IFRS financial measures, which are used internally by management to evaluate the Company's ongoing performance, exclude the impact of stock based compensation and amortization of intangible assets acquired through business acquisitions (collectively referred to as "Non-IFRS Expenses"). The Company provides these non-IFRS financial measures as it is the Company's view that the Non-IFRS Expenses either (i) affect the comparability of results from period to period as the Non-IFRS 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 to 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.



Three month period ended

Six month period ended



May 31,

2014

$

May 31,

2013

$

May 31,

2014

$

May 31,

2013

$



Amounts in US$ thousands

Net income

4,389

892

11,870

2,590

Adjustment for









Stock based compensation expense (i)

370

505

819

1,024

Non-IFRS Net income

4,759

1,397

12,689

3,614







Three month period ended

Six month period ended



May 31,

2014

$

May 31,

2013

$

May 31,

2014

$

May 31,

2013

$











Diluted earnings per share

0.028

0.006

0.079

0.018

Impact on diluted earnings per share of Non-IFRS measures

0.003

0.004

0.005

0.008

Non-IFRS Diluted earnings per share

0.031

0.010

0.084

0.026



(i)Comprised of stock based compensation related to the Company's stock option plan.

Sandvine Corporation

Consolidated Statements of Financial Position

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



As at



May 31,

2014

$

November 30,

2013

$

Assets











Current assets





Cash and cash equivalents

7,659

5,454

Short term investments

136,972

83,856

Accounts receivable

30,096

36,662

Inventory

7,043

7,481

Grant receivable

-

6,853

Other current assets

2,678

3,171



184,448

143,477

Non current assets





Plant and equipment

9,250

10,405

Intangible assets

3,350

3,477

Deferred tax asset

212

212

Other assets

511

511



13,323

14,605









197,771

158,082







Liabilities











Current liabilities





Trade and other payables

8,680

16,566

Current portion of deferred revenue

20,915

14,214



29,595

30,780

Non current liabilities





Deferred revenue

1,704

1,571









31,299

32,351

Shareholders' equity











Share capital

150,206

121,509

Contributed surplus

15,593

15,784

Accumulated comprehensive income (loss)

(120)

(485)

Retained earnings (deficit)

793

(11,077)



166,472

125,731









197,771

158,082











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 six month period

ended




May 31,

2014

$

May 31,

2013

$



May 31,

2014

$

May 31,

2013

$













Revenue











Product

19,820

15,450



42,039

33,499

Service

9,906

8,087



19,234

15,067



29,726

23,537



61,273

48,566

Cost of sales











Product

3,806

3,375



7,670

7,899

Service

3,352

2,853



6,322

5,376



7,158

6,228



13,992

13,275













Gross margin

22,568

17,309



47,281

35,291













Expenses











Sales and marketing

8,313

7,079



16,186

14,242

Research and development

6,310

4,303



12,354

10,368

General and administrative

3,247

2,920



6,241

5,698

Other losses, net

-

28



18

72



17,870

14,330



34,799

30,380













Income from operations

4,698

2,979



12,482

4,911













Finance income (costs), net











Finance income

71

31



116

70

Finance costs

-

(130)



-

(241)

Foreign exchange gains (losses)

(92)

14



(312)

(49)

Finance income (costs), net

(21)

(85)



(196)

(220)













Income before provision for income taxes

4,677

2,894



12,286

4,691













Current provision for income taxes

288

2,002



416

2,101













Net income for the period

4,389

892



11,870

2,590













Earnings per share











Basic earnings per share

0.029

0.006



0.082

0.019

Diluted earnings per share

0.028

0.006



0.079

0.018















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 six month period

ended




May 31,

2014

$

May 31,

2013

$



May 31,

2014

$

May 31,

2013

$

Cash provided by (used in)























Operating activities











Net income for the period

4,389

892



11,870

2,590

Items not affecting cash











Amortization of intangible assets

280

286



554

563

Depreciation of plant and equipment

1,090

1,130



2,270

2,201

Unrealized foreign exchange (gains)

losses


(95)

15



82

(81)

Finance costs

-

130



-

241

Stock-based compensation

450

505



939

1,024

Other

1

109



12

166



6,115

3,067



15,727

6,704



Changes in non-cash working capital balances

19,821

2,981



18,931

10,829



25,936

6,048



34,658

17,533

Investing activities











Purchase of plant, equipment and intangible software assets

(861)

(972)



(2,842)

(1,822)

Purchase of short term investments

(24,067)

(5,043)



(53,116)

(8,579)



(24,928)

(6,015)



(55,958)

(10,401)

Financing activities











Repayment of government grants

-

(66)



(4,153)

(2,270)

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

646

123



1,561

317

Common shares issued for cash

-

-



28,269

-

Common share repurchase

-

(647)



-

(1,012)

Common shares purchased under the share unit plan

(2,178)

-



(2,178)

-



(1,532)

(590)



23,499

(2,965)

Effect of foreign exchange on cash and cash equivalents

61

(19)



6

(33)













Net increase (decrease) in cash during period

(463)

(576)



2,205

4,134













Cash and cash equivalents Beginning of period

8,122

8,667



5,454

3,957













Cash and cash equivalents End of period

7,659

8,091



7,659

8,091













Cash and cash equivalents are represented by











Balances with banks

7,659

8,091



7,659

8,091















SOURCE Sandvine


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