Sandvine Reports Q1 2017 Results

Company announces quarterly dividend

WATERLOO, ON, April 6, 2017 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $33.3 million for its first quarter of 2017, net income of $4.1 million, or $0.03 per diluted share, and EBITDA¹ of $7.0 million, or $0.05 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 2017	Q1 2016	Change
Revenue	33.3	34.2	-2%
Gross Margin percent	74%	76%	-2pp
Expenses	19.3	18.7	3%
Net Income	4.1	5.6	-28%
Diluted Earnings per Share	0.03	0.04	-18%
EBITDA^1	7.0	8.8	-21%
Diluted EBITDA^1 per Share	0.05	0.06	-12%

¹ EBITDA is a non-IFRS financial measure. See NON-IFRS FINANCIAL MEASURES below.

Other Q1 2017 highlights:

• Revenue by access technology market: wireless 55%; fixed telco 32%; fixed cable 12%; other 1%
• Revenue by geography: APAC 37%; EMEA 34%; NA 20%; CALA 9%
• Revenue by sales channel: reseller 66%; direct 34%
• Cash and investments: $117.2 million
• Customers: Won 8 new customers

"Overall, I'm pleased with the start to the year, with strong revenue contribution from the wireless and fixed telco markets.  However, the cable market continues to lag as it experiences the ongoing effects of the consolidation activity that took place last year," said Dave Caputo, Sandvine's President and CEO.

Since the last quarterly results announcement, Sandvine:

• Announced that the company received orders totaling over $3 million from a Tier 1, multinational, converged mobile/fixed communications service provider (CSP) group, headquartered in Sandvine's CALA sales region. The orders were received in Sandvine's second quarter.
• Announced Globe Telecom as a new tier-1 customer. Globe serves more than 55 million customers and operates one of the largest, most technologically-advanced, and robust mobile, fixed line and broadband networks in the Philippines.
• Was recognized by Great Places to Work Canada as being one of the Best Workplaces in Canada for Women.
• Launched mobile data management features for its Cloud Services Policy Controller product. These new features help the business customers of communications service providers better understand, manage, and secure their employees' domestic and international mobile data usage.
• Announced that EANTC has independently validated important functional and performance aspects of Sandvine's virtualized network policy control solutions, including the company's new Traffic Steering Engine product.
• Announced that the Sandvine Virtual Series products are now certified for use on Red Hat OpenStack Platform 8.0.

DIVIDEND PROGRAM
Sandvine also announced today that its Board of Directors has approved a dividend of C$0.02 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: 44613167
Webcast: www.sandvine.com/investors

A replay of the Q1 2017 results call will be available at (888)-843-7419 (passcode 44613167#) at 11:00 a.m. ET today, through April 20, 2017.

ABOUT SANDVINE
Sandvine's network policy control solutions add intelligence to fixed, mobile and converged communications service provider networks, to increase revenue, reduce network costs and improve subscriber quality of experience. Our networking solutions perform end-to-end policy control functions, including traffic classification, policy decision and enforcement. Deployed as virtualized network functions or on Sandvine's purpose built hardware, the products provide actionable business insight, and the ability to deploy new consumer and business subscriber services, optimize and secure network traffic, and engage with subscribers.

Sandvine's network policy control solutions are deployed in more than 300 networks in over 100 countries, serving hundreds of millions of data subscribers worldwide. www.sandvine.com.

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
Amounts in US$ thousands			February 28, 2017 $	February 29, 2016 $
Net income			4,068	5,619
	Adjustment for
		Interest, net *	(206)	(92)
		Taxes	1,473	1,801
		Depreciation	945	919
		Amortization	690	596
EBITDA			6,970	8,843
Basic EBIDTA per share			0.054	0.062
Diluted earnings per share			0.031	0.038
Impact on diluted earnings per share of non-IFRS measures			0.022	0.022
Diluted EBITDA per share			0.053	0.060

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

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 news release, constitute "forward-looking information" and "forward looking statements" (collectively, "forward looking statements") within the meaning of applicable Canadian securities laws and are based on assumptions, expectations, estimates and projections as of the date of this news 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. The words "plans", "expects", "projected", "estimated", "forecasts", "anticipates", "intend", "guidance", "outlook", "potential", "prospects", "seek", "aim", "strategy", "targets" or "believes", or variations of such words and phrases or statements that certain future conditions, actions, events or results "will", "may", "could", "would", "should", "might" or "can", or negative versions thereof, "occur", "continue" or "be achieved", and other similar expressions, identify forward-looking statements. 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 outside of the Company's control and are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being entirely or partially incorrect or untrue. Forward looking statements contained in this news release are based on various assumptions, including, but 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; the Company's ability to achieve 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; the Company's ability to comply with applicable laws and regulations concerning the sale and export of its products; the Company's continued compliance with third party intellectual property rights; foreign exchange hedging; ability of the Company to declare and pay quarterly dividends; and that the risk factors noted below, collectively, do not have a material impact on the Company's business, operations, revenues and/or results. By their nature, forward-looking statements are 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 2016 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, the timing of customer purchase decisions, including the recent trend of slowing customer activity in the summer months, 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 but are not limited to 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 and sell 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 or laws might be appropriate with respect to how CSPs manage and charge for 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 the Company 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. 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 2017 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 subject to government regulations concerning the sale and export of its products outside of North America and its failure or inability to comply with these regulations could materially restrict the Company's operations and subject it to penalties;
• The Company is dependent on effectively managing acquisitions and integrations. Acquisitions present a number of risks which are disclosed in the 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 policy of paying dividends on the common shares of the Company (the "Common Shares") is subject to the discretion of the board of directors of the Company (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 the Company 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 news 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 28,  2017 $	November 30,  2016 $
Assets
Current assets
Cash	14,782	14,922
Investments	102,373	118,064
Accounts receivable	40,811	33,829
Inventory	4,694	5,580
Other current assets	4,086	3,484
	166,746	175,879
Non current assets
Plant and equipment	9,665	9,812
Intangible assets and goodwill	11,018	11,668
Deferred tax assets	17,991	18,679
Investment in associates	3,804	3,732
Other assets	426	353
	42,904	44,244
	209,650	220,123
Liabilities
Current liabilities
Trade and other payables	17,562	18,604
Deferred revenue	18,230	16,243
	35,792	34,847
Non current liabilities
Deferred revenue	4,253	3,713
Other liabilities	1,188	1,188
Deferred tax liabilities	790	845
	6,231	5,746
	42,023	40,593
Shareholders' equity
Share capital	117,888	125,944
Contributed surplus	18,474	17,961
Accumulated comprehensive loss	(197)	(231)
Retained earnings	31,462	35,856
	167,627	179,530
	209,650	220,123

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,  2017 $	February 29,  2016 $
Revenue
Product	22,563	23,335
Service	10,772	10,823
	33,335	34,158
Cost of sales
Product	5,102	5,231
Service	3,629	2,903
	8,731	8,134
Gross margin	24,604	26,024
Expenses
Sales and marketing	9,460	9,601
Research and development	5,380	5,704
General and administrative	4,460	3,350
	19,300	18,655
Income from operations	5,304	7,369
Finance income	206	92
Foreign exchange loss	(40)	(41)
	166	51
Share of profit of equity accounted investees, net of tax	71	—
Income before provision for income taxes	5,541	7,420
Current and deferred provision for income taxes	1,473	1,801
Net income for the period	4,068	5,619
Earnings per share
Basic earnings per share	0.031	0.039
Diluted earnings per share	0.031	0.038

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,  2017 $	February 29,  2016 $
Cash provided by (used in)
Operating activities
Net income for the period		4,068	5,619
Items not affecting cash
	Amortization of intangible assets	690	596
	Depreciation of plant and equipment	945	919
	Unrealized foreign exchange loss (gains)	(193)	132
	Stock-based compensation	687	576
	Deferred provision for income taxes	1,004	1,092
	Investment tax credits	(331)	(359)
	Share of profit of equity accounted investees, net of tax	(71)	—
	Other	(46)	(40)
		6,753	8,535
Changes in non-cash working capital balances		(6,061)	(1,955)
Income taxes paid		(111)	(329)
		581	6,251
Investing activities
Purchase of plant, equipment and intangible software assets		(765)	(1,230)
Purchase of short term investments		(209)	(93)
Proceeds from sale of short term investments		15,900	5,000
		14,926	3,677
Financing activities
Proceeds from the issuance of shares under the employee stock option plan		189	195
Common share repurchase		(13,196)	(3,278)
Common shares purchased under the share unit plan		(785)	(1,170)
Dividends paid		(1,989)	(1,827)
		(15,781)	(6,080)
Effect of foreign exchange on cash		134	(132)
Net increase (decrease) in cash during period		(140)	3,716
Cash – Beginning of period		14,922	8,826
Cash – End of period		14,782	12,542

SOURCE Sandvine

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

Related Links

http://www.sandvine.com