Sandvine Reports Q1 2016 Results

Company announces quarterly dividend

WATERLOO, ON, April 7, 2016 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $34.2 million for its first quarter of 2016, net income of $5.6 million, or $0.04 per diluted share, and EBITDA of $8.8 million, or $0.06 per diluted share.  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	Q1 2016	Q1 2015	Change
Revenue	34.2	32.4	5%
Gross Margin percent	76%	76%	0pp
Expenses	18.7	17.2	8%
Net Income^2	5.6	10.2	-45%
Diluted Earnings Per Share	0.04	0.07	-43%
EBITDA^1, 2	8.8	11.7	-25%
Diluted EBITDA per Share	0.06	0.08	-25%
^1 EBITDA is a non-IFRS financial measure. See RECONCILIATION OF NON-IFRS FINANCIAL MEASURES below.
^2 Q1 2015 results include $2.8 million of other income related to the gain on the disposition of an investment in a private company.

Other Q1 2016 results highlights:

• Revenue by access technology market: wireless 45%; cable 36%; DSL 17%; other 2%
• Revenue by geography: NA 44%; EMEA 25%; APAC 20%; CALA 11%
• Revenue by sales channel: direct 53%; reseller 47%
• Cash and investments: $144.2 million
• Customers: Won 22 new customers.

"We are pleased with Sandvine's financial results in the first quarter, which represent record Q1 revenue and our 14^th consecutive quarter of profitability," said Dave Caputo, Sandvine's President and CEO. "We continue to see network upgrades to 100 Gigabit Ethernet, which has resulted in significant orders for our Policy Traffic Switch 32000. We have also created new avenues for growth through the addition of our TCP Accelerator product and significant enhancements to our Network Security product."

Since the last quarterly results announcement, Sandvine:

• Has completed the acquisition of Teclo Networks AG on March 24, 2016.  This has enabled Sandvine to launch its TCP Accelerator product for mobile operators. Sandvine's TCP Accelerator enhances the quality of experience for mobile Internet subscribers on 2G to 5G networks, reduces the risk of subscriber churn and extends network life
• Announced enhancements for its Network Security product through a partnership with Symantec. This new integration will enable communications service providers to better protect both their subscribers and their network infrastructure
• Announced that it has received an expansion order for more than $5 million from a Tier 1 fixed line operator customer in Asia. The operator, a long-time Sandvine customer, is upgrading to Sandvine's market-leading 100GE Policy Traffic Switch 32000 to enable traffic optimization and the creation of new revenue-generating service plans
• Announced that Webbing, a mobile roaming solution services provider for global businesses, has been using Sandvine's Virtual Series in multiple datacenters around the world to enable data roaming in over 170 countries
• Published a Global Internet Phenomena Report spotlight on the state of Internet traffic encryption in 2016, which forecasts that 70% of global Internet traffic will be encrypted in 2016, with many networks exceeding 80%

DIVIDEND PROGRAM
Sandvine also announced today that its Board of Directors has approved its second quarterly dividend of C$0.0175 per common share, payable on May 8, to shareholders of record as of the close of business on April 20.

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: 42188210
Webcast: www.sandvine.com/investors

A replay of the Q1 2016 results call will be available at (888)-843-7419 (passcode 42188210#) at 11:00 a.m. ET today through April 21, 2016.

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.

RECONCILIATION OF 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
					February 29, 2016 $	February 28, 2015 $
				Amounts in US$ thousands
Net income					5,619	10,164
	Adjustment for
		Interest, net *			(92)	(90)
		Taxes			1,801	392
		Depreciation			919	988
		Amortization			596	262
EBITDA					8,843	11,716
EBIDTA per share					0.062	0.079

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

			Three month period ended
			February 29, 2016 $	February 28, 2015 $
Diluted earnings per share			0.038	0.067
Impact on diluted earnings per share of non-IFRS measures			0.022	0.010
Diluted EBITDA per share			0.060	0.077

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 press release, constitute "forward-looking information" within the meaning of applicable Canadian securities laws and are based on expectations, estimates and projections as of the date of this press 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. 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, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being incorrect. In addition to the various factors and assumption set forth in this press release, the material factors and assumptions used to develop the forward looking information, include, but are 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; its growth strategy; the demand for the Company's products and fluctuations in future revenues; target blended gross margin; 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; declaration of quarterly dividends; and that the risk factors noted below, collectively, do not have a material impact on the Company. By its nature, forward-looking information is 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 2015 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 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 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 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 might be appropriate with respect to how CSPs 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;
  
  
• 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.  While a shift to NFV could impact the Company's short term revenues, the Company does not expect the sale of NFV solutions to be a material contributor to revenue in fiscal 2016.  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 2016 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 dependent on effectively managing the acquisitions and integrations. Acquisitions present a number of risks which are disclosed in 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 s policy of paying dividends on its Common Shares is subject to the discretion of 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 we 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 press 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) (unaudited)

	As at
	February 29, 2016 $	November 30,  2015 $
Assets
Current assets
Cash	12,542	8,826
Investments	131,608	136,515
Accounts receivable	49,319	41,939
Inventory	7,191	8,728
Other current assets	3,494	4,340
	204,154	200,348
Non current assets
Plant and equipment	9,924	9,753
Intangible assets	6,154	6,650
Goodwill	3,001	3,001
Deferred tax assets	19,796	20,706
Other assets	112	-
	38,987	40,110
	243,141	240,458
Liabilities
Current liabilities
Trade and other payables	17,946	20,652
Deferred revenue	19,558	14,786
	37,504	35,438
Non current liabilities
Deferred revenue	3,082	2,231
Deferred tax liabilities	1,025	1,112
	4,107	3,343
	41,611	38,781
Shareholders' equity
Share capital	136,319	139,084
Contributed surplus	16,974	16,577
Accumulated comprehensive loss	(586)	(833)
Retained earnings	48,823	46,849
	201,530	201,677
	243,141	240,458

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 29, 2016 $	February 28, 2015 $
Revenue
Product	23,335	22,148
Service	10,823	10,293
	34,158	32,441
Cost of sales
Product	5,231	4,861
Service	2,903	2,892
	8,134	7,753
Gross margin	26,024	24,688
Expenses
Sales and marketing	9,601	8,444
Research and development	5,704	5,602
General and administrative	3,350	3,145
Other losses, net	-	4
	18,655	17,195
Income from operations	7,369	7,493
Finance income	92	90
Foreign exchange gain (loss)	(41)	195
Other income	-	2,778
Income before provision for income taxes	7,420	10,556
Current and deferred provision for income taxes	1,801	392
Net income for the period	5,619	10,164
Earnings per share
Basic earnings per share	0.039	0.069
Diluted earnings per share	0.038	0.067

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 29, 2016 $	February 28, 2015 $
Cash provided by (used in)
Operating activities
Net income for the period		5,619	10,164
Items not affecting cash
	Amortization of intangible assets	596	262
	Depreciation of plant and equipment	919	988
	Unrealized foreign exchange loss	132	63
	Gain on sale of investment	-	(2,778)
	Stock-based compensation	576	468
	Deferred provision for income taxes	1,092	-
	SR&ED ITCs	(359)	-
	Other	(40)	(41)
		8,535	9,126
Changes in non-cash working capital balances		(2,284)	(1,803)
		6,251	7,323
Investing activities
Purchase of plant, equipment and intangible software assets		(1,230)	(2,256)
Purchase of short term investments		(93)	(94)
Proceeds from sale of short term investments		5,000	-
Proceeds from sale of investment		-	232
		3,677	(2,118)
Financing activities
Proceeds from the issuance of shares under the employee stock option plan		195	308
Common share repurchase		(3,278)	(1,907)
Common shares purchased under the share unit plan		(1,170)	(2,256)
Dividends paid		(1,827)	-
		(6,080)	(3,855)
Effect of foreign exchange on cash		(132)	(4)
Net increase in cash during period		3,716	1,346
Cash– Beginning of period		8,826	8,956
Cash– End of period		12,542	10,302

SOURCE Sandvine

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