The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Sandvine Reports Q2 2010 Results

Thursday, July 08, 2010

Sandvine Reports Q2 2010 Results07:00 EDT Thursday, July 08, 2010WATERLOO, ONTARIO--(Marketwire - July 8, 2010) - Attention: Technology EditorsSandvine, (TSX:SVC)(AIM:SAND) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported record quarterly revenue of $22.4 million and GAAP net income of $2.0 million (non-GAAP1: $3.7 million) for its second quarter of 2010."This is our fourth consecutive quarter of revenue growth and second consecutive quarter with positive earnings and cash flow. We remain focused on continuing our revenue growth and are pleased with our progress towards this goal so far this year," said Dave Caputo, Sandvine's President and Chief Executive Officer.The DSL and mobile markets each had record quarters, each contributing 40% of Sandvine's second quarter revenue, while the cable market contributed 20% of revenue. Sandvine's revenue was split almost equally between North America and all other sales regions combined. Forty-one percent of revenue was earned through reseller partners.Over the quarter Sandvine generated $3.1 million in cash which increased its cash and marketable securities balance to $91.6 million at May 31, due largely to positive cash flow from operations. FINANCIAL HIGHLIGHTS (All amounts are in Canadian dollars) ---------------------------------------------------------------------------- Millions of dollars, except per share data and where otherwise indicated Q2 2010 Q2 2009 CHG Q1 2010 CHG ---------------------------------------------------------------------------- Revenue 22.4 15.2 47% 21.9 2% Gross Margin percent 74% 76% -2pp 75% -1pp R&D, SG&A 11.8 14.7 -20% 13.6 -13% Net Income (Loss) 2.0 (5.6) - 0.6 251% Diluted Earnings (Loss) Per Share 0.014 (0.042) - 0.004 250% Non-GAAP(1) Income (Loss) 3.7 (4.4) - 1.6 128% Non-GAAP(1) Diluted Income (Loss) Per Share 0.026 (0.033) - 0.012 117% ---------------------------------------------------------------------------- GAAP earnings were positively impacted by $3.2 million of funding from Ontario's Next Generation of Jobs Fund. The Company anticipates recording funding of $0.6 - $0.7 million per quarter of funding related to this program during the term of the agreement which ends in February 2014. GAAP earnings were negatively impacted in the quarter by a $0.7 million one-time, non-cash intangible asset impairment charge.Sandvine is focused on growing its fixed and mobile service provider customer base and the number of broadband subscribers they represent. The Company has over 190 service provider customers in over 80 countries. Together these customers serve more than 90 million fixed line broadband subscribers and more than 200 million mobile subscribers, a rapidly growing number of whom use broadband data services.In the second quarter of 2010 Sandvine won nine new customers. -- By access technology: five DSL service providers, three mobile service providers and one cable operator. -- By geography: four from North America, three from EMEA and one each from Asia Pacific and Caribbean and Latin America. Sandvine made initial sales to customers in three new countries. -- Sales channel: three customers were won through reseller partners, including two that were won through strategic relationships with global network equipment vendors. CONFERENCE CALLThe Company will discuss the quarterly results and business outlook on a conference call at 8:30 a.m. Eastern time (1:30 BST) today. A webcast will be available on Sandvine's website. Local dial-in number 416 644 3416 Toll-free North America 800 814 4860 Toll-free United Kingdom 0800 358 5263 A replay of the call will be available at 416-640-1917 or toll-free at 877-289-8525 (passcode 4321489#) from approximately 10:30 a.m. Eastern time on the day of the call through July 15.ABOUT SANDVINESandvine's network policy control solutions focus on protecting and improving the quality of experience on the Internet.Our award-winning network equipment and software helps DSL, FTTx, cable, fixed wireless and mobile operators better understand network traffic, manage network congestion, create new services and revenues, mitigate traffic that is malicious or undesirable to subscribers, deliver QoS-prioritized multimedia services and increase subscriber satisfaction. With service provider customers in more than 80 countries serving hundreds of millions of broadband and mobile data subscribers, Sandvine is enhancing the Internet experience worldwide.CAUTION REGARDING FORWARD LOOKING INFORMATIONCertain 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; -- 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 emergence of new technologies 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; -- The Company's growth is dependent on the development of the market for intelligent broadband network management 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, the Federal Communications Commission in the United States (the "FCC") has announced a Notice of Proposed Rulemaking pursuant to which the FCC intends to consider whether additional regulation in respect of network management practices of internet service providers is required. The FCC has also initiated a Notice of Inquiry to identify the approach that will best support its efforts in this regard, including the possibility of regulating broadband services (or just specific aspects of it) under the same (Title II) requirements of the United States' Telecommunications Act under which traditional telecommunications services have been regulated. These processes may cause uncertainty in the network investment decisions of the Company's target customers, and any new rules or regulations that result from this process may impact the demand for the Company's products within the United States, which has historically been the Company's largest market, and elsewhere, as service providers and regulators in other countries may look to practices adopted in the United States; -- The majority of the Company's operating expenses are denominated in Canadian dollars, U.S. dollars and New Israeli Shekels while its revenues and cost of sales are generally denominated in U.S. dollars. The Company's earnings are impacted by fluctuations in the exchange rates between these and other currencies in which the Company trades; Table 11. Non-GAAP Financial MeasuresThe following table provides a reconciliation of GAAP net income (loss) and related per share amounts to non-GAAP net income (loss) and the related per share amounts for the periods indicated. These non-GAAP financial measures which are used internally by management to evaluate the Company's ongoing performance exclude the impact of stock based compensation, amortization of intangible assets acquired through business acquisitions and goodwill and intangible impairment expenses (collectively referred to as "Excluded Expenses"). The Company provides these non-GAAP financial measures as it is the Company's view that the Excluded Expenses are either (i) not part of its normal day-to-day operations 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. Non-GAAP net income (loss) is not recognized under Canadian GAAP and does not have a standardized meaning prescribed by Canadian GAAP. Therefore it is unlikely to be comparable to similarly titled measures reported by other issuers. Non-GAAP financial measures should be considered in the context of the Company's GAAP results. --------------------------------------------------------------------------- --------------------------------------------------------------------------- Six month period Three month period ended ended --------------------------------------------------------------------------- February May 31 28 May 31 May 31 May 31 2010 2010 2009 2010 2009 $ $ $ $ $ Amounts in thousands Net income (loss) 1,958 558 (5,635) 2,516 (10,430) Excluded Expenses Stock based compensation expense 743 667 824 1,410 1,640 Amortization of intangible assets acquired through business acquisitions 331 400 400 731 800 Goodwill impairment - - - - 2,425 Intangible impairment 669 - - 669 - ------------------------------------------------------- ------------------- Net income (loss) excluding the impact of Excluded Expenses 3,701 1,625 (4,411) 5,326 (5,565) --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Six month period Three month period ended ended --------------------------------------------------------------------------- February May 31 28 May 31 May 31 May 31 2010 2010 2009 2010 2009 $ $ $ $ $ Diluted earnings (loss) per share 0.014 0.004 (0.042) 0.018 (0.077) Impact on diluted earnings (loss) per share of Excluded Expenses 0.012 0.008 0.009 0.020 0.036 ------------------------------------------------------- ------------------- Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.026 0.012 (0.033) 0.038 (0.041) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Sandvine Corporation Interim Balance Sheets As at May 31, 2010 (in Canadian dollars, amounts in thousands) (unaudited) May 31 November 30 2010 2009 $ $ Assets Current assets Cash and cash equivalents 7,476 2,341 Marketable securities 84,097 83,423 Accounts receivable 17,616 20,741 Inventory 12,199 9,744 Other 2,258 1,773 -------------------------------- 123,646 118,022 -------------------------------- Non current assets Plant and equipment 13,649 13,026 Intangible assets 2,522 5,221 Intangible asset held for sale 1,105 - -------------------------------- 17,276 18,247 -------------------------------- 140,922 136,269 -------------------------------- -------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 8,884 10,732 Current portion of deferred revenue 9,989 7,513 -------------------------------- 18,873 18,245 -------------------------------- Non current liabilities Deferred revenue 734 790 -------------------------------- 734 790 -------------------------------- 19,607 19,035 -------------------------------- Shareholders' equity Share capital 147,182 146,820 Contributed surplus 10,213 9,000 Accumulated other comprehensive loss (100) (90) Deficit (35,980) (38,496) -------------------------------- 121,315 117,234 -------------------------------- 140,922 136,269 -------------------------------- -------------------------------- Sandvine Corporation Interim Balance Sheets As at May 31, 2010 (in Canadian dollars, amounts in thousands) (unaudited) Three months ended Six months ended ------------------------------------------------------ May 31 May 31 May 31 May 31 2010 2009 2010 2009 $ $ $ $ Revenue Product 17,071 10,186 35,887 25,050 Service 5,333 5,023 8,380 8,736 ------------------------------------------------------ 22,404 15,209 44,267 33,786 ------------------------------------------------------ Cost of sales Product 4,403 2,977 9,041 6,759 Service 1,395 714 2,319 1,471 -------------------------- --------------------------- 5,798 3,691 11,360 8,230 ------------------------------------------------------ Gross margin 16,606 11,518 32,907 25,556 ------------------------------------------------------ Expenses Sales and marketing 4,502 5,380 9,105 10,631 Research and development 5,305 6,890 11,836 13,988 General and administrative 1,999 2,438 4,470 4,350 Stock based compensation 743 824 1,410 1,640 Amortization of intangible assets 434 535 944 1,033 Depreciation 1,057 1,185 2,031 2,235 Intangible impairment 669 - 669 - Goodwill impairment - - - 2,425 ------------------------------------------------------ 14,709 17,252 30,465 36,302 ------------------------------------------------------ Income (loss) from operations 1,897 (5,734) 2,442 (10,746) Interest and other income 86 134 135 466 -------------------------- --------------------------- Income (loss) before provision for income taxes 1,983 (5,600) 2,577 (10,280) ------------------------------------------------------ Provision for income taxes Current 25 21 61 68 Future - 14 - 82 -------------------------- --------------------------- 25 35 61 150 -------------------------- --------------------------- Net income (loss) for the period 1,958 (5,635) 2,516 (10,430) ------------------------------------------------------ ------------------------------------------------------ Earnings (loss) per share Basic 0.014 (0.042) 0.019 (0.077) ------------------------------------------------------ Diluted 0.014 (0.042) 0.018 (0.077) ------------------------------------------------------ Basic weighted average number of shares outstanding 136,006,036 135,585,389 135,918,460 135,569,699 ------------------------------------------------------ ------------------------------------------------------ Diluted weighted average number of shares outstanding 141,153,586 135,585,389 140,450,955 135,569,699 ------------------------------------------------------ ------------------------------------------------------ Sandvine Corporation Interim Balance Sheets As at May 31, 2010 (in Canadian dollars, amounts in thousands) (unaudited) Three months ended Six months ended --------- --------- --------- --------- May 31 May 31 May 31 May 31 2010 2009 2010 2009 $ $ $ $ Cash provided by (used in) Operating activities Net income (loss) for the period 1,958 (5,635) 2,516 (10,430) Items not affecting cash Amortization of intangible assets 434 535 944 1,033 Depreciation 1,137 1,200 2,181 2,291 Foreign exchange loss (gain) 161 (104) 150 (115) Stock-based compensation 743 824 1,410 1,640 Goodwill impairment - - - 2,425 Future income tax provision - 14 - 82 Intangible impairment 669 - 669 - ---------------------------------------- 5,102 (3,166) 7,870 (3,074) Changes in non-current balances 19 146 (57) 210 Changes in non-cash working capital balances (477) 1,551 671 4,237 ---------------------------------------- 4,644 (1,469) 8,484 1,373 ---------------------------------------- Investing activities Purchase of plant, equipment and intangible software assets (1,657) (1,101) (2,880) (3,846) Purchase of marketable securities (31,097) (172,361) (60,586) (384,418) Sale of marketable securities 26,969 171,727 59,884 389,313 ---------------------------------------- (5,785) (1,735) (3,582) 1,049 ---------------------------------------- Financing activities Proceeds from the issuance of share capital 178 20 233 20 ---------------------------------------- 178 20 233 20 ---------------------------------------- Net increase (decrease) increase in cash during period (963) (3,184) 5,135 2,442 Cash and cash equivalents - Beginning of period 8,439 9,498 2,341 3,872 ---------------------------------------- Cash and cash equivalents - End of period 7,476 6,314 7,476 6,314 ---------------------------------------- ---------------------------------------- Cash and cash equivalents are represented by Balances with banks 5,880 1,692 5,880 1,692 Cash equivalents 1,596 4,622 1,596 4,622 FOR FURTHER INFORMATION PLEASE CONTACT: INVESTOR RELATIONS CONTACT: Sandvine Rick Wadsworth +1 519 880 2400 ext. 3503 rwadsworth@sandvine.com or MEDIA CONTACT: Sandvine Jennifer Ross +1 519 880 2232 jross@sandvine.com or AIM NOMAD: Canaccord Adams Limited Andrew Chubb/Simon Bridges +44 0207 050 6500