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Press release from Marketwire

Sandvine Reports Q3 2010 Results

Thursday, October 07, 2010

Sandvine Reports Q3 2010 Results07:00 EDT Thursday, October 07, 2010WATERLOO, ONTARIO--(Marketwire - Oct. 7, 2010) - Attention: Technology Editors Sandvine, (TSX:SVC)(AIM:SAND) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported record quarterly revenue of $24.4 million and GAAP net income of $2.2 million (non-GAAP(1): $3.1 million) for its third quarter of 2010."The DSL and mobile access markets drove strong results again as network operators globally look to manage rapidly growing data traffic and differentiate service offerings with new plans that personalize the Internet experience for subscribers," said Dave Caputo, Sandvine's President and Chief Executive Officer. "International growth has been strong. Both the EMEA and Asia Pacific sales regions contributed record revenues, supported by record contributions from our robust reseller channel."Approximately half of the Company's revenue was derived from the DSL access market, 30% from the mobile access market and 20% from cable network operators. Just over 60% of total revenues came from outside North America and, for the first time, over half of the Company's revenue was earned through reseller partners. Year-to-date, revenue has grown 38%. FINANCIAL HIGHLIGHTS (All amounts are in Canadian dollars) ---------------------------------------------------------------------------- Millions of dollars, except per share data and where otherwise Q3 Q3 Q2 indicated 2010 2009 Change 2010 Change ---------------------------------------------------------------------------- Revenue 24.4 16.0 53% 22.4 9% Gross Margin percent 74% 73% 1pp 74% Nil R&D, SG&A 13.8 13.6 1% 11.8 17% Net Income (Loss) 2.2 (4.4) - 2.0 12% Diluted Earnings (Loss) Per Share 0.016 (0.032) - 0.014 14% Non-GAAP(1) Income (Loss) 3.1 (3.1) - 3.7 -17% Non-GAAP(1) Diluted Income (Loss) Per Share 0.022 (0.023) - 0.026 -15% ---------------------------------------------------------------------------- Sandvine's cash and marketable securities balance at the end of the quarter remained strong at $89.4 million. 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 200 service provider customers in over 80 countries. Together these customers serve more than 90 million fixed line broadband subscribers and more than 250 million mobile subscribers, a rapidly growing number of whom use broadband data services.In the third quarter of 2010 Sandvine won six new customers. -- By access technology: three DSL service providers, two mobile service providers and one cable operator. -- By geography: three from EMEA, two from Asia Pacific and one from Caribbean and Latin America. Sandvine made initial sales to customers in three new countries. -- Sales channel: five customers were won through reseller partners, including two that were won through a strategic relationship with a global, mobile network equipment vendor. Change in Functional and Reporting Currency As a result of the continuing shift experienced in the proportion of Sandvine's revenues, expenses, assets and liabilities that are denominated in U.S. dollars (USD), and its expectation that this shift will continue in future periods, effective December 1, 2010 Sandvine will adopt the USD as its functional and reporting currency. Prior to this conversion date, the Company's operations will continue to be measured and reported in Canadian dollars. An analysis of this change and its potential impacts has been included in the Company's Management's Discussion and Analysis, filed on SEDAR today.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 866 250 4877 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 4368167#) from approximately 10:30 a.m. Eastern time today through October 14.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's reseller partners may offer their own products which are competitive with the Company's products; -- 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, numerous telecommunications 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 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. ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Amounts in thousands Three month period ended Nine month period ended ---------------------------------------------------------------------------- August 31 May 31 August 31 August 31 August 31 2010 2010 2009 2010 2009 $ $ $ $ $ Net income (loss) 2,200 1,958 (4,358) 4,716 (14,788) Excluded Expenses Stock based compensation expense 666 743 823 2,076 2,463 Amortization of intangible assets acquired through business 192 331 400 922 1,200 acquisitions Goodwill impairment - - - - 2,425 Intangible impairment - 669 - 669 - ---------------------------------------------------------------------------- Net income (loss) excluding the impact of Excluded Expenses 3,058 3,701 (3,135) 8,383 (8,700) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three month period ended Nine month period ended ---------------------------------------------------------------------------- August 31 May 31 August 31 August 31 August 31 2010 2010 2009 2010 2009 $ $ $ $ $ Diluted earnings (loss) per share 0.016 0.014 (0.032) 0.034 (0.109) Impact on diluted earnings (loss) per share of Excluded Expenses 0.006 0.012 0.009 0.026 0.045 ---------------------------------------------------------------------------- Diluted earnings (loss) per share excluding the impact of Excluded Expenses 0.022 0.026 (0.023) 0.060 (0.064) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sandvine Corporation Consolidated Interim Balance Sheets As at August 31, 2010 (in Canadian dollars, amounts in thousands) (unaudited) August 31 2010$ November 30 2009$ Assets Current assets Cash and cash equivalents 5,090 2,341 Marketable securities 84,269 83,423 Accounts receivable 23,849 20,741 Inventory 12,464 9,744 Other 2,629 1,773 ---------------------------------- 128,301 118,022 ---------------------------------- Non-current assets Plant and equipment 13,394 13,026 Intangible assets 3,761 5,221 Other assets 525 - ---------------------------------- 17,680 18,247 ---------------------------------- 145,981 136,269 ---------------------------------- ---------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 10,994 10,732 Current portion of deferred revenue 10,069 7,513 ---------------------------------- 21,063 18,245 ---------------------------------- Non-current liabilities Deferred revenue 461 790 ---------------------------------- 461 790 ---------------------------------- 21,524 19,035 ---------------------------------- Shareholders' equity Share capital 147,425 146,820 Contributed surplus 10,819 9,000 Accumulated other comprehensive loss (7) (90) Deficit (33,780) (38,496) ---------------------------------- 124,457 117,234 ---------------------------------- 145,981 136,269 ---------------------------------- ---------------------------------- Sandvine Corporation Consolidated Interim Statements of Operations For the three and nine months periods ended August 31, 2010 (in Canadian dollars amounts in thousands, except share and per share data) (unaudited) Three months ended Nine months ended ----------------------------------------------------- August 31 August 31 August 31 August 31 2010 2009 2010 2009 $ $ $ $ Revenue Product 18,527 11,995 54,414 37,045 Service 5,920 4,035 14,300 12,771 ----------------------------------------------------- 24,447 16,030 68,714 49,816 ----------------------------------------------------- Cost of sales Product 4,864 3,452 13,905 10,211 Service 1,552 872 3,871 2,343 ----------------------------------------------------- 6,416 4,324 17,776 12,554 ----------------------------------------------------- Gross margin 18,031 11,706 50,938 37,262 ----------------------------------------------------- Expenses Sales and marketing 4,820 4,682 13,925 15,313 Research and development 6,973 6,696 18,809 20,684 General and administrative 1,971 2,228 6,441 6,578 Stock based compensation 666 823 2,076 2,463 Amortization of intangible assets 328 537 1,272 1,570 Depreciation 1,150 1,210 3,181 3,445 Intangible impairment - - 669 - Goodwill impairment - - - 2,425 ----------------------------------------------------- 15,908 16,176 46,373 52,478 ----------------------------------------------------- Income (loss) from operations 2,123 (4,470) 4,565 (15,216) Interest and other income 117 114 252 580 ----------------------------------------------------- Income (loss) before provision for income taxes 2,240 (4,356) 4,817 (14,636) ----------------------------------------------------- Provision for income taxes Current 40 27 101 95 Future - (25) - 57 ----------------------------------------------------- 40 2 101 152 ----------------------------------------------------- Net income (loss) for the period 2,200 (4,358) 4,716 (14,788) ----------------------------------------------------- ----------------------------------------------------- Earnings (loss) per share Basic 0.016 (0.032) 0.035 (0.109) ----------------------------------------------------- Diluted 0.016 (0.032) 0.034 (0.109) ----------------------------------------------------- Basic weighted average number of shares outstanding 136,466,457 135,653,593 136,101,292 135,597,816 ----------------------------------------------------- ----------------------------------------------------- Diluted weighted average number of shares outstanding 140,729,379 135,653,593 140,557,024 135,597,816 ----------------------------------------------------- ----------------------------------------------------- Sandvine Corporation Consolidated Interim Statements of Cash Flows For the three and nine months periods ended August 31, 2010 (in Canadian dollars amounts in thousands, except share and per share data) (unaudited) Three months ended Nine months ended ----------------------------------------------------- August 31 August 31 August 31 August 31 2010 2009 2010 2009 $ $ $ $ Cash provided by (used in) Operating activities Net income (loss) for the period 2,200 (4,358) 4,716 (14,788) Items not affecting cash Amortization of intangible assets 328 537 1,272 1,570 Depreciation 1,238 1,237 3,419 3,528 Foreign exchange loss (gain) (107) 155 (100) 279 Stock-based compensation 666 823 2,076 2,463 Goodwill impairment - - - 2,425 Future income tax provision - (25) - 57 Intangible impairment - - 669 - ----------------------------------------------------- 4,325 (1,631) 12,052 (4,466) Changes in non-current balances (272) 127 (329) 337 Changes in non-cash working capital balances (4,292) (525) (3,478) 3,473 ----------------------------------------------------- (239) (2,029) 8,245 (656) ----------------------------------------------------- Investing activities Purchase of plant, equipment and intangible software assets (2,191) (589) (5,071) (4,435) Purchase of marketable securities (22,103) (85,993) (82,689) (470,411) Sale of marketable securities 21,935 84,921 81,819 474,234 ----------------------------------------------------- (2,359) (1,661) (5,941) (612) ----------------------------------------------------- Financing activities Proceeds from the issuance of share capital 212 44 445 64 ----------------------------------------------------- 212 44 445 64 ----------------------------------------------------- Net (decrease) increase in cash during period (2,386) (3,646) 2,749 (1,204) Cash and cash equivalents - Beginning of period 7,476 6,314 2,341 3,872 ----------------------------------------------------- Cash and cash equivalents - End of period 5,090 2,668 5,090 2,668 ----------------------------------------------------- ----------------------------------------------------- Cash and cash equivalents are represented by Balances with banks 3,487 2,427 3,487 2,427 Cash equivalents 1,603 241 1,603 241 FOR FURTHER INFORMATION PLEASE CONTACT: Sandvine INVESTOR RELATIONS CONTACT Rick Wadsworth +1 519 880 2400 ext. 3503 rwadsworth@sandvine.com or Sandvine MEDIA CONTACT Jennifer Ross +1 519 880 2232 jross@sandvine.com or Canaccord Adams Limited AIM NOMAD Andrew Chubb/Simon Bridges +44 0207 050 6500