Sandvine Reports Q2 2016 Results

Company announces quarterly dividend

WATERLOO, ON, July 7, 2016 /CNW/ - Sandvine, (TSX:SVC) a leading provider of intelligent network policy control solutions for fixed and mobile operators, today reported its second quarter results. Revenue grew 17% to $33.5 million, net income grew 34% to $4.0 million, or $0.03 per diluted share, and EBITDA¹ grew 60% to $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.

Other Q2 2016 results highlights:

• Revenue by access technology market: wireless 68%; DSL 16%; cable 15%; other 1%
• Revenue by geography: NA 30%; EMEA 29%; CALA 21%; APAC 20% 
• Revenue by sales channel: reseller 51%; direct 49%
• Cash and investments: $151.3 million
• Customers: Won 20 new customers

"We are pleased with Sandvine's growth in the quarter, the 11% increase in revenue we've experienced so far this year, and the fact that we've added more customers to date this year than we did for all of 2015. I believe that these accomplishments reflect, in part, the investment we made last year to increase the size of our sales force," said Dave Caputo, Sandvine's President and CEO. "Revenue remained well diversified across sales regions, was strong in the wireless market, and no customer represented more than 10% of revenue."

Since the last quarterly results announcement, Sandvine:

• Announced innovative deployments around the globe that, together, take advantage of Sandvine's PCRF and its subscriber services, business intelligence and traffic optimization solution sets:
  • Eastlink (Mobile, Canada)
  • TextNow (MVNO, Canada)
  • GTT (Mobile, Guyana)
  • SITAONAIR (Satellite, Switzerland)
  • TWT (DSL, Italy)
  • Paratus Telecom (Mobile, Namibia)
• Announced $3 million in expansion orders from a wireless operator group in CALA, and a $4 million order from a North American satellite operator, both of which included Sandvine's PTS 32000, the performance leader for 100GE-capable network policy control platforms
• Released a Global Internet Phenomena Report focusing on Latin America and North America, highlighting the slight decline in Netflix traffic on North America fixed networks due to Netflix's encoding optimizations, and how Facebook and Google now account for over 70% of total mobile traffic in Latin America
• Published our Best Practices for implementing innovative subscriber service plans using zero-rating and sponsored data, while mitigating concerns about network neutrality
• Added two new Directors to its Board, Gemma Toner, a former Senior Vice President at Cablevision, and Osama Arafat, the former CEO of Q9 Networks Inc.

DIVIDEND PROGRAM
Sandvine also announced today that its Board of Directors has approved its third quarterly dividend of C$0.0175 per common share, payable on August 8, to shareholders of record as of the close of business on July 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: 42854257
Webcast: www.sandvine.com/investors

A replay of the Q2 2016 results call will be available at (888)-843-7419 (passcode 42854257#) at 11:00 a.m. ET today through July 21, 2016.

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.

These non-IFRS financial measure, 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 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 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 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 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 press release are qualified by these cautionary statements.

SOURCE Sandvine

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