Sandvine reports Q1 2014 results

WATERLOO, ON, April 10, 2014 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported record revenue of $31.5 million for its first quarter of 2014, net income of $7.5 million and non-IFRS income of $8.0 million. All results are reported in U.S. dollars under International Financial Reporting Standards (IFRS), unless otherwise specified.

Other Q1 2014 highlights:

• Revenue growth: up 26% compared to Q1 2013
• Revenue by access technology market: wireless 62%; DSL 18%; cable 20%
• Revenue by geography: NA 47%; EMEA 22%; CALA 18%; APAC 13%
• Revenue by sales channel: reseller 77%; direct 23%
• Gross margin: 78%
• Cash: Cash, cash equivalents and short-term investments balance: $121.0 million, including $28.3 million raised through a bought deal financing during the quarter
• Major wins: Announced $15 million in orders from Tier 1 operators, including approximately $10 million in expansion orders from a Tier 1 North American operator with fixed and mobile properties and an expansion order worth over $5 million from a Tier 1 North American cable company that first became a customer in 2003
• Customers: Won 16 new service provider customers, including 8 wireless operators
• Products:
  • Launched the PTS 32000, a 100GE network policy control platform that offers industry-leading throughput per rack unit, power efficiency and port density
  • Launched the Device Insights Dashboard that adds granular analysis of device usage by application to Sandvine's Network Analytics product
  • Launched the latest version of Usage Management, which enables new features for operators to quickly roll out differentiated, innovative service plans to their users
  • Launched a fully virtualized offering that enables operators to provide Sandvine's network policy control solutions as managed services to their business customers

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

Millions of dollars, except per share data and where otherwise indicated	Q1 2014	Q1 2013	Change
Revenue	31.5	25.0	26%
Gross Margin percent	78%	72%	6pp
Expenses	16.9	16.1	5%
Net Income	7.5	1.7	341%
Diluted Earnings Per Share	0.051	0.012	325%
Non-IFRS Income^1	8.0	2.2	259%
Non-IFRS Diluted Earnings Per Share^1	0.055	0.016	244%

¹ See Table 1 below regarding non-IFRS financial measures

"We are pleased to have had a good start to the year. We reported record quarterly revenue, record wireless market revenue and strong net income, all while introducing four significant product innovations. Our ongoing commitment to product innovation contributed to the strong financial performance in fiscal 2013 and the first quarter of this year.  We will continue to innovate in 2014, while remaining focused on revenue growth and profitability," said Dave Caputo, Sandvine's President and CEO.

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: 36985539
Webcast	www.sandvine.com/investors

A replay of the call will be available at (888)-843-7419 (passcode 36985539 #) from approximately 11:00 a.m. Eastern time today through April 20.

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;

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
	February 28 2014 $	February 28, 2013 $
	Amounts in US$ thousands
Net income	7,481	1,698
Adjustment for
Stock based compensation expense	489	519
Non-IFRS net income	7,970	2,217
	Three month period ended
	February 28, 2014 $	February 28, 2013 $
Diluted earnings per share	0.051	0.012
Impact on diluted earnings per share of Non-IFRS measures	0.004	0.004
Non-IFRS diluted earnings per share	0.055	0.016

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

	As at
	February 28, 2014 $	November 30, 2013 $
Assets
Current assets
Cash and cash equivalents	8,122	5,454
Short term investments	112,905	83,856
Accounts receivable	37,972	36,662
Inventory	6,901	7,481
Grant receivable	7,051	6,853
Other current assets	2,690	3,171
	175,641	143,477
Non current assets
Plant and equipment	10,047	10,405
Intangible assets	3,705	3,477
Deferred tax asset	212	212
Other assets	511	511
	14,475	14,605
	190,116	158,082
Liabilities
Current liabilities
Trade and other payables	8,350	16,566
Current portion of deferred revenue	18,190	14,214
	26,540	30,780
Non current liabilities
Deferred revenue	1,056	1,571
	27,596	32,351
Shareholders' equity
Share capital	151,315	121,509
Contributed surplus	15,608	15,784
Accumulated comprehensive income (loss)	(807)	(485)
Retained deficit	(3,596)	(11,077)
	162,520	125,731
	190,116	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
				February 28, 2014 $	February 28, 2013 $
Revenue
Product				22,219	18,049
Service				9,328	6,980
				31,547	25,029
Cost of sales
Product				3,864	4,524
Service				2,970	2,523
				6,834	7,047
Gross margin				24,713	17,982
Expenses
Sales and marketing				7,873	7,163
Research and development				6,044	6,065
General and administrative				2,994	2,778
Other losses, net				18	44
				16,929	16,050
Income from operations				7,784	1,932
Finance income (costs), net
Finance income				45	39
Finance costs				-	(111)
Foreign exchange losses				(220)	(63)
Finance costs, net				(175)	(135)
Income before provision for income taxes				7,609	1,797
Current provision for income taxes				128	99
Net income for the period				7,481	1,698
Earnings per share
Basic earnings per share				0.053	0.012
Diluted earnings per share				0.051	0.012

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
				February 28, 2014 $	February 28, 2013 $
Cash provided by (used in)
Operating activities
Net income for the period				7,481	1,698
Items not affecting cash
Amortization of intangible assets				274	277
Depreciation of plant and equipment				1,180	1,071
Unrealized foreign exchange (gains) losses				177	(96)
Finance costs				-	111
Stock-based compensation				489	519
Other				11	61
				9,612	3,641
Changes in non-cash working capital balances				(890)	7,848
				8,722	11,489
Investing activities
Purchase of plant, equipment and intangible software assets				(1,981)	(850)
Purchase of short term investments				(29,049)	(3,540)
				(31,030)	(4,390)
Financing activities
Repayment of government grants				(4,153)	(2,204)
Proceeds from the issuance of shares under the employee stock option plan				915	194
Common shares issued for cash				28,269	-
Common share repurchase				-	(365)
				25,031	(2,375)
Effect of foreign exchange on cash and cash equivalents				(55)	(14)
Net increase in cash during period				2,668	4,710
Cash and cash equivalents – Beginning of period				5,454	3,957
Cash and cash equivalents – End of period				8,122	8,667
Cash and cash equivalents are represented by
Balances with banks				8,122	8,667

SOURCE: Sandvine

INVESTOR CONTACT: Rick Wadsworth, Sandvine, [phone] ext. 3503, [email protected]; MEDIA CONTACT: Dan Deeth, Sandvine, [phone], [email protected]