Sandvine Reports Q2 2017 Results

WATERLOO, ON, July 17, 2017 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported revenue of $27.5 million for its second quarter of 2017, net income of $1.1 million, or $0.01 per diluted share, and EBITDA¹ of $3.1 million, or $0.02 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	Q2 2017	Q2 2016	Change
Revenue	27.5	33.5	-18%
Gross Margin percent	77%	74%	3pp
Expenses	19.7	19.6	1%
Net Income	1.1	4.0	-73%
Diluted Earnings per Share	0.01	0.03	-67%
EBITDA^1	3.1	7.0	-56%
Diluted EBITDA^1 per Share	0.02	0.05	-60%

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

Other Q2 2017 highlights:

• Revenue by access technology market: wireless 55%; fixed telco 26%; fixed cable 17%; other 2%
• Revenue by geography: EMEA 37%; NA 29%; APAC 17%; CALA 17%
• Revenue by sales channel: direct 55%; reseller 45%
• Cash and investments: $111.6 million
• Customers: Won 16 new customers

Since the last quarterly results announcement, Sandvine:

• Announced that the new Intel® Xeon® Scalable processor platform will provide their Policy Traffic Switch (PTS) Virtual Series customers with up to 60% more packet processing power. As a member of the Intel® Network Builders ecosystem, Sandvine had early access to Intel Xeon Gold 6150 processor based platforms.
• Announced that its leading Business Intelligence solutions have been enhanced to allow for faster, more flexible and more intuitive reporting on more key metrics than ever before.
• Announced that a new European tier-1 mobile communications service provider (CSP) has launched mobile data management features of Sandvine's Cloud Services Policy Controller product, and has signed several initial enterprise customers for the service.
• Announced that Sandvine's products are currently being used by more than a dozen satellite operators across all layers of the satellite Internet ecosystem to ensure a high quality of experience for their subscribers.
• Launched its Application Provider Ecosystem, which is designed to accelerate technical integration between application and content providers and CSPs' systems to enable mutually beneficial business opportunities.
• Released two Global Internet Phenomena Spotlights dealing with data fraud, including one on the mechanics of the "fully-loaded" Kodi ecosystem in North America for accessing unlicensed live and on-demand video content, and another on how some subscribers are using HTTP header injection to exploit CSPs' decisions to zero-rate certain websites and subscriber portals.
• Celebrated 10 years as one of the Best Workplaces in Canada, as determined by Great Place to Work®.

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 EBITDA per share amounts for the periods indicated.

				Three month period ended		Six month period ended
Amounts in US$ thousands				May 31, 2017 $	May 31, 2016 $	May 31, 2017 $	May 31, 2016 $
Net income				1,107	3,988	5,175	9,607
		Adjustment for
			Finance income	(278)	(126)	(484)	(218)
			Taxes	627	1,427	2,100	3,228
			Depreciation	981	1,015	1,926	1,934
			Amortization	701	673	1,391	1,269
EBITDA				3,138	6,977	10,108	15,820
Basic EBIDTA per share				0.026	0.049	0.080	0.111
Diluted earnings per share				0.009	0.028	0.039	0.066
Impact on diluted earnings per share of non-IFRS
		measures		0.015	0.020	0.038	0.042
Diluted EBITDA per share				0.024	0.048	0.077	0.108

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 Annual Information Form for the year ended November 30, 2016 ("AIF") and management information circular dated June 16, 2017, copies of which are 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; and
• 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
	May 31,  2017 $	November 30,  2016 $
Assets
Current assets
Cash	11,955	14,922
Investments	99,637	118,064
Accounts receivable	42,034	33,829
Inventory	5,261	5,580
Other current assets	4,262	3,484
	163,149	175,879
Non current assets
Plant and equipment	9,830	9,812
Intangible assets and goodwill	10,336	11,668
Deferred tax assets	18,016	18,679
Investment in associates	3,857	3,732
Other assets	426	353
	42,465	44,244
	205,614	220,123
Liabilities
Current liabilities
Trade and other payables	10,171	18,604
Deferred revenue	25,780	16,243
	35,951	34,847
Non current liabilities
Deferred revenue	4,159	3,713
Other liabilities	1,188	1,188
Deferred tax liabilities	732	845
	6,079	5,746
	42,030	40,593
Shareholders' equity
Share capital	121,367	125,944
Contributed surplus	18,956	17,961
Accumulated comprehensive loss	(242)	(231)
Retained earnings	23,503	35,856
	163,584	179,530
	205,614	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			For the six month period ended
		May 31,  2017 $	May 31,  2016 $		May 31,  2017 $	May 31,  2016 $
Revenue
Product		16,592	22,222		39,155	45,557
Service		10,939	11,316		21,711	22,139
		27,531	33,538		60,866	67,696
Cost of sales
Product		2,746	5,133		7,848	10,364
Service		3,701	3,520		7,330	6,423
		6,447	8,653		15,178	16,787
Gross margin		21,084	24,885		45,688	50,909
Expenses
Sales and marketing		9,585	10,066		19,045	19,667
Research and development		5,807	6,120		11,187	11,824
General and administrative		4,331	3,388		8,791	6,738
Other losses, net		—	2		—	2
		19,723	19,576		39,023	38,231
Income from operations		1,361	5,309		6,665	12,678
Finance income		278	126		484	218
Foreign exchange gain (loss)		42	(20)		2	(61)
		320	106		486	157
Share of profit of equity accounted
	investees, net of tax	53	—		124	—
Income before provision for income
	taxes	1,734	5,415		7,275	12,835
Current and deferred provision for
	income taxes	627	1,427		2,100	3,228
Net income for the period		1,107	3,988		5,175	9,607
Earnings per share
Basic earnings per share		0.009	0.028		0.041	0.067
Diluted earnings per share		0.009	0.028		0.039	0.066

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			For the six month period ended
		May 31,  2017 $	May 31,  2016 $		May 31,  2017 $	May 31,  2016 $
Cash provided by (used in)
Operating activities
Net income for the period		1,107	3,988		5,175	9,607
Items not affecting cash
	Amortization of intangible assets	701	673		1,391	1,269
	Depreciation of plant and equipment	981	1,015		1,926	1,934
	Unrealized foreign exchange loss (gains)	(8)	(274)		(201)	(142)
	Stock-based compensation	655	576		1,342	1,152
	Deferred provision for income taxes	(25)	(2,524)		979	(1,432)
	Investment tax credits	1	3,292		(330)	2,933
	Share of profit of equity accounted investees, net of tax	(53)	—		(124)	—
	Other	(53)	(34)		(99)	(74)
		3,306	6,712		10,059	15,247
Changes in non-cash working capital balances		7,387	15,908		1,326	13,953
Income taxes paid		(17)	(679)		(128)	(1,008)
		10,676	21,941		11,257	28,192
Investing activities
Purchase of plant, equipment and intangible software
	assets	(1,435)	(1,007)		(2,200)	(2,237)
Purchase of short term investments		(264)	(102)		(473)	(195)
Proceeds from sale of short term investments		3,000	—		18,900	5,000
Acquisition of business		—	(3,500)		—	(3,500)
		1,301	(4,609)		16,227	(932)
Financing activities
Proceeds from the issuance of shares under the
	employee stock option plan	195	186		384	381
Common Share repurchase		(13,270)	(8,714)		(26,466)	(11,992)
Common Shares purchased under the share unit plan		—	—		(785)	(1,170)
Dividends paid		(1,773)	(2,010)		(3,762)	(3,837)
		(14,848)	(10,538)		(30,629)	(16,618)
Effect of foreign exchange on cash		44	274		178	142
Net increase (decrease) in cash during period		(2,827)	7,068		(2,967)	10,784
Cash – Beginning of period		14,782	12,542		14,922	8,826
Cash – End of period		11,955	19,610		11,955	19,610

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