Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Rick Wadsworth - Director, IR

Dave Caputo - Co-Founder, President & CEO

Scott Hamilton - CFO

Analysts

Scott Penner - TD Securities

Alex Henderson - Needham and Company

Kris Thompson - National Bank

Robert Young - Canaccord Genuity

Richard Tse - Cormark Securities

Robin Manson-Hing - CIBC

Catharine Trebnick - Dougherty & Company

Deepak Kaushal - GMP Securities

Naser Iqbal - Salman Partners

Daniel Rosenberg - Desjardins Securities

Sandvine Corporation (OTC:SNVNF) Q2 2014 Earnings Conference Call July 10, 2014 8:30 AM ET

Operator

Welcome to the Sandvine's Second Quarter 2014 Results Investor Conference Call. My name is Serene, and I will be the operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

Certain information presented in this presentation by management of Sandvine that is not historical factual information may constitute forward-looking information within the meanings of securities laws. Actual results could differ materially from a conclusion, forecast or projection contained in such forward-looking information. Certain material factors or assumptions were also applied in drawing a conclusion or making forecast or project as reflected in such forward-looking information. Additional information about material factors that could actual results to differ materially from the conclusions, forecasts or projections in the forward-looking information and details regarding the material factors or assumptions that were applied in drawing such conclusions or making such forecast or projections are contained in the Company's Annual Information Form and in other filings made by the company with applicable securities regulatories from time to time, all of which are available through SEDAR at www.sedar.com.

I would now turn the conference over to Mr. Rick Wadsworth. Mr. Wadsworth, you may begin.

Rick Wadsworth

Thank you, operator. Hello and welcome to Sandvine's second quarter 2014 results conference call. During the call, we will walk through a slide presentation, that you can download from the Investor Relations section of the website, sandvine.com. For those of you following along, we are currently on slide 2, we will let you know when to change slides.

On the call today, are Dave Caputo, President and Chief Executive Officer; and Scott Hamilton, our Chief Financial Officer. Sandvine reports financial results under International Financial Reporting Standards or IFRS. During the call, Dave and Scott will refer to certain non-IFRS results. Non-IFRS results excludes the effective stock-based compensation and amortization of intangible assets acquired through business acquisitions. A reconciliation of IFRS to non-IFRS results is included in table 1 of today's news release and in the company's Management Discussion and Analysis which we have filed on SEDAR. Management uses these non-IFRS measures to evaluate performance of Sandvine's business and accordingly believes that they may be useful to investors.

I'll now turn the call over to Dave for some introductory remarks.

Dave Caputo

Thanks Rick. Slide 3; second quarter revenue was $29.7 million, representing 26% year-over-year growth. I am particularly pleased that we were able to achieve this revenue level with such a broad base of customers and relatively low customer concentration.

Our 10% plus customers in the quarter contributed less than 30% of revenue, which is lower than any recent period. Revenue was down slightly compared to last quarter, which is consistent with the cadence in the previous two years.

Slide 4; year-to-date we have grown revenue 26%. We ended 2013 with the highest market share amongst our standalone network policy control peers and we are pleased to have shown solid growth in the first half of 2014 as well.

Net income for the quarter was $4.4 million compared to under a million in the second quarter of last year. Year-to-date net income grew by more than 350% to $11.9 million. Results were driven broadly across geography, access technologies and sales channels. We added seven new customers during the quarter.

I will now ask Scott to review Q2 results in more detail.

Scott Hamilton

Thanks Dave. Unless otherwise specified, all current and comparative period amounts referred to on the call are stated in U.S. dollars under IFRS.

Slide 5; revenue for the second quarter was $29.7 million, up 26% over Q2 of 2013, and down slightly from last quarter, which as Dave mentioned is not unusual. Product revenue was 67% of revenue and service revenue was 33% of the total. 37% of our revenue came from North America, 31% from EMEA, 20% from Asia-Pacific and 12% from CALA. The wireless market contributed 39% of revenue, the DSO market 33% and the cable market 28% of revenue.

Our reseller partners sold 58% of total revenue for the quarter and 42% came through the direct sales channel. In all, 15 partners resold our products during the quarter to 31 end customers. Sandvine's year-to-date revenue grew by 26% over the comparable six month period of 2013 to $61.3 million.

Slide 6; in total, 29% of revenue was derived from 10% plus customers. The 29% was comprised of one end customer that represented 15% of revenue and one reseller that represented 14% of revenue and resold product to 15 end customers. As Dave mentioned, this is low customer concentration compared to recent quarters. We remain pleased by the diversification of our customer base.

Slide 7; our blended gross margin was 76%, up two percentage points compared to Q2 of 2013. This increase was primarily the result of software revenue being a higher proportion of total product revenue in the quarter, as compared to the same period last year. Operating expenses were $17.9 million, which is consistent with the $17.6 million reported in Q2 of 2013 after normalizing for $3.3 million in government assistance in Q2 of 2013.

Consistent with what we communicated previously, sales and marketing expenses are up and research and development expenses are slightly lower as we have shifted investment to scale our sales and marketing activities. Included in expenses are approximately $1.9 million in depreciation and amortization and stock-based compensation. The allocation of these amounts to the individual income statement line items is outlined in our MD&A.

The company's IFRS net income for the second quarter grew by 392% compared to the second quarter of 2013 to $4.4 million or 15% of revenue and $0.03 per share. The increase relates to higher revenue and gross margin percentage, partially offset by higher operating expenses in the period. Non-IFRS income was $4.8 million compared to $1.4 million in Q2 of 2013. Year-to-date net income grew by 358% to $11.9 million or 19% of revenue and $0.08 per share. Non-IFRS income for the year-to-date grew to $12.7 million compared to $3.6 million in Q2 of 2013.

Our cash and short term investment balance at the end of Q2 was $144.6 million, up from $89.3 million at the end of November. We generated $26 million in cash from operations in Q2 and $35 million for the year-to-date. We assess our DSOs on a pro forma basis, which excludes accounts receivable associated with deferred revenue. Pro form DSOs were 83 days compared to 73 days at the end of November 2013. The company continues to anticipate that pro forma DSOs will typically be in the range of 75 to 90 days. Bookings in the quarter were less than the total revenue for the period.

As on all of our previous calls, we cautioned investors that due to the nature of our business we continue to expect significant variability in our quarterly results. This variability may manifest itself in many ways, including but not limited to product mix, geographical concentration, market segment concentration, sales channel mix and customer concentration that we may report in any given quarter. Most notably, it may result in a significant variation in reported revenue and gross margin on a quarter-to-quarter basis.

I will now return the call to Dave.

Dave Caputo

Thanks Scott. Slide 8; during Q2, Sandvine launched the Capacity Planning Dashboard for our Network Analytics product. This new dashboard has been purpose-built for our engineering, operations and network provisioning teams to provide data on network resource performance trends across the network. It allows operators to easily identify and manage congested network resources, so that they can intelligently defer capital spending where possible, without impacting the quality of experience of their subscribers. An ROI calculator in the product gives operators the ability to simulate a number of factors, including quality score, deferral period and capacity upgrade costs, in order to strike the right balance between subscriber quality of experience and cost savings.

Recently, we announced how Sandvine's Usage Management solutions is helping smart communications in the Philippines, offer bite-sized service plans such as Email, Chat, Photo and Social packages, in 15-minute, three hour or per-day snack sizes, depending on the particular application and plan for a very low fixed price. We are excited about the opportunity for bite-sized plans, like this one and the Whatsapp and Facebook plans that we have previously enabled for Econet in Zimbabwe, which give users unlimited use of these applications for as little as $0.30 per day. These plans are creating solid economics for both subscribers and operators, which will increase the adoption of the mobile Internet for people across all demographics.

We believe that these types of plans will be transformative. In our latest global Internet phenomena report, we discussed how Whatsapp rose to become 23% of network activity shortly after Econet launched its Whatsapp plans. That's extremely high, particularly since messaging is not a bandwidth intensive activity. Competitors of Econet in Zimbabwe have taken notice.

In the United States we are very encouraged to see T-Mobile's new offerings, which zero rate a number of music applications so that music is completely unlimited under the plans. Sandvine's innovative customer, Cricket, was the first to do this in the United States, with their Muve music offering. We like how these trends are developing globally.

Earlier this week we made an announcement about Sandvine's virtual series, the fully virtualized version of the Sandvine platform. The Sandvine virtual series enables operators to enjoy all the features of our traditional Sandvine platform, while benefiting from the elasticity and efficiency of running virtual machines on commercial off-the-shelf hardware. We will continue to sell our solutions in the traditional way for some time, but Sandvine's network functions virtualization and software defined networking initiatives are a key area of focus and a natural extension of our product capabilities.

We expect that NFV [Network Functions Virtualization] will open up new markets for us. For example, it allows us to reach smaller operators like we are doing through hosted solutions at ClearSky Technologies. It also lets our operator customers host virtualized versions of our solutions to offer the services to their business customers, a whole new end customer group for Sandvine.

I'd like to thank everyone on team Sandvine for their efforts in the second quarter. Operator, we will now take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from Scott Penner from TD Securities. Please go ahead.

Scott Penner - TD Securities

Well thanks. Good morning guys. Just two topics really; first of all on the notion of sponsored data, whether you've seen any interest in service creation as a result of this and whether people are rationally interested in sponsored data by name or is that this point is just sort of a checkbox item for the future?

Dave Caputo

Certainly, the concept of sponsored data, and that is where a content provider and application provider, a web site, anyone pays for the bandwidth on behalf of the person visiting the web site, we think is a very powerful concept. It's going to take many shapes and sizes. You could think of - you buy a new Tesla, that vehicle is connected to the Internet. Tesla is paid for that, on behalf of the person who owns that vehicle. You could think if it is the Amazon Kindle, where Amazon is buying that bandwidth on behalf of the person who is downloading the book.

I think it’s going to take many shapes and sizes. We are definitely having specific and concrete discussions with solution and service providers around the world with respect to concepts around sponsored data. So I would say, it’s something that is already real in certain forms, and will become more and more commonplace over the next few years. We are really excited about the concept of sponsored data.

Scott Penner - TD Securities

And then just on the uses of cash Dave, I mean, it was a good size build in Q2 as Scott noted, and obviously on top of the recent equity raise. Can you just give an update on what the priorities are for deploying cash and specifically, where you are on any M&A opportunities or the pipeline there?

Scott Hamilton

Okay. So obviously very happy with the strong cash balance and the cash generation over the past little while here. Certainly, we are very actively looking at M&A opportunities and doing our due diligence around opportunities for the most part. Well, I would say we haven't' done a deal in a few years now, and I just put that out there to say we are being very discerning that we have to feel that the technology is right, the end customer application is right, and that we think the team is right to do it. So we would definitely do a deal, that we felt was the right deal to do, and then just in general, I will reiterate, having a strong cash balance is very reassuring. You could be assured that all our larger customers do significant due diligence around strategic suppliers, of which I think increasingly we’re being seen as one of them.

Scott Penner - TD Securities

Okay. Thank you.

Dave Caputo

Thanks Scott.

Operator

Thank you. And our next question comes from Alex Henderson from Needham and Company. Please go ahead.

Alex Henderson - Needham and Company

Hey guys. I was hoping you could give us some sense of what portion of revenues came in, in the quarter, that were driven by the service creation, where you are generating new revenues for your customers as opposed to network optimization or analytics or alternatively if you could give us some relative split between those three categories it'd be very helpful?

Dave Caputo

Okay, Alex. So you could think of our business principally in those three categories, network optimization, service creation and business intelligence. We have very consciously said we are not going to report that on a quarter-by-quarter basis. We think it’s much better to look at it on an annual basis, when we put that data out at the beginning of the year. Well I won't give anything specific, I will say the trend is continuing in that service creation and business intelligence is quite often becoming the lead application. But I will say, that we were quite happy for last year that we saw growth in traffic optimization for the first time, and I think it was three years.

Alex Henderson - Needham and Company

Just to make sure that I am at least on the same -- in the right ballpark. Over the last two years, it has been running over 50%. Is it fair to say it’s still over 50% in the current quarter?

Dave Caputo

It’s fair to say that over the past number of quarters, it has been over 50%. I won't say specifically for this quarter. Not evading the quarter, just we are not giving out those -- that granular information.

Alex Henderson - Needham and Company

Okay. Can't blame a guy for trying. And then could you just give us any sense of what the kind of momentum in terms of RFI, RFP activity there is out there? Is the market feeling more robust, less robust, about the same, in terms of demand conditions?

Scott Hamilton

I will say Q2 is proving to be for us, our quiet quarter. Our Q1 captures December and our Q2, there is really no catalyst for spending and that sort of thing. I can't speak specifically to the RFP stuff, because it has just been a few months or at least a few weeks since I looked at it specifically. What I will say is I am pretty pleased with our ability in Q2 to sell more to our existing customers. Generally, that ratio is 80% existing customers, 20% existing customers -- I mean, 80% existing, 20% new. I'd say that number was closer to 90/10 in Q2, and without any really big deals moving the needle for us in Q2, I was really glad to see our execution in supporting our installed base and selling more to our install base.

Alex Henderson - Needham and Company

Okay. I will cede the floor. Thanks.

Dave Caputo

Thanks Alex.

Operator

Thank you. And our next question comes from Kris Thompson from National Bank. Please go ahead.

Kris Thompson - National Bank

Great, thanks. Dave, just on the revenue this quarter for Q2 you said 90% with some existing. Do you have an idea or can you give us an idea of how much of that was expansion of existing solutions or adding say new service creation portfolios here to their optimization deployments for instance?

Scott Hamilton

I don't have the number specifically Kris, but just a feel of it, it was more I would say for the most part, it was customers extending their existing solution.

Kris Thompson - National Bank

Okay, and just, Scott while you are there, the book-to-bill was below one, I think that was the first time, it has been below one for about eight quarters. Obviously, the quarter is very strong. Can you give us an idea how far below one that was and should we be concerned about that?

Scott Hamilton

Consistent with the past we haven't provided a specific number. I think I would just say generically that, our book-to-bill ratio being below one, I wouldn't -- obviously, one is not a trend, and from a focus perspective we still have the -- we still and do have the ability to book and bill within a quarter. So I don't necessarily look at our book to bill as being predictive for our next quarter. Obviously, we would always love it to be above one, but the fact that it’s below one once every seven or eight quarters is not overly alarming to us.

Kris Thompson - National Bank

Okay. And just Dave, on the M&A in the carrier space, now that Cricket’s been consumed by AT&T and they are migrating all of those subs off the CDMA network, will that have any impact on your revenue with Cricket?

Dave Caputo

I guess we see that as an opportunity and that they are preserving the brand as far as I know, and going to be keeping some of the innovative plans that they have out there as far as I know, and so I just generally see it as a good opportunity for us, as opposed to maybe the negative conclusion that you might jump to based on what you've read.

Kris Thompson - National Bank

Okay. And just on Telefonica last one, they are acquiring E-Plus' 25 million subs. Can you tell us if E-Plus is currently a Sandvine customer, and if that's also an opportunity?

Dave Caputo

I can't tell you that, because they are not an announced or otherwise customer, but what I will say in general, Telefonica remains a very strategic and important customer to Sandvine, and we certainly welcome any expansion that they do.

Kris Thompson - National Bank

Okay. Thanks gentlemen. Have a great day.

Operator

Thank you. And our next question comes from Robert Young from Canaccord Genuity. Please go ahead.

Robert Young - Canaccord Genuity

Hi, good morning.

Dave Caputo

Good morning Rob.

Robert Young - Canaccord Genuity

I was hoping to dig into the gross margins a bit. Once again very high relative to your 70% plus guidance. I was wondering if there is any chance you'd revisit that, and I went to look at the components of that, I think direct sales are a bit higher than normal, and you said that the sales to existing customers is a bit higher. Would those be the factors driving or are there any other factors to think of?

Scott Hamilton

I wouldn't characterize this between direct and indirect as being overly impactful on our margin. We have seen levels of much higher indirect revenue and similar gross margin level. I think the main driver was just product mix. We had a positive product mix in the quarter versus same period last year. Certainly the last three or four quarters we have seen an increase or expansion of our gross margin. Again, I would echo what I said last quarter when we discussed this, we will remain focused on 70% plus and to the extent that we are able to continue to beat it, everyone will be happy, but the focus internally remains that target, and we have disclosed in the past.

Robert Young - Canaccord Genuity

Okay. And maybe some -- in the past you've said that you expect the second half typically to be stronger than the first half, and then the -- I was wondering if the funnel and bookings, despite being below one here this quarter. Are you still expecting second half to be stronger?

Dave Caputo

So it's just a fact that every year of our existence, where we have had revenue, we have always recorded more revenue in the second half than the first. We hope to repeat that this year. Well I won't speak to bookings, I will say the funnel certainly does support our ability to achieve that again this year.

Robert Young - Canaccord Genuity

Okay. And then the two deals that you announced during, may be just slightly after the quarter, the Etisalat and Smart Deal [ph], and were those delivered in the quarter you just reported, or would we expect those to be in the quarter you are in now?

Scott Hamilton

Majority of the dollars associated with those orders would have been this quarter, Q2.

Robert Young - Canaccord Genuity

Okay. Okay, thanks a lot. I will pass on.

Dave Caputo

Thanks Robert.

Operator

Thank you. And our next question comes from Richard Tse from Cormark Securities. Please go ahead.

Richard Tse - Cormark Securities

Yeah, thank you. Hey Dave, how are you doing? Just a question on the virtualization solution. When do you guys see that kind of really kicking in? Is it sort of a three to five year type thing; and then secondly, how would that sort of change the business model from a revenue standpoint, as well as from a margin standpoint, given that's probably a bit more focused on the software side?

Dave Caputo

Great question Richard. So there is -- I mean there is two distinct things, but they often get intermingled here. Our product is now fully NFVable, network functions virtualization, where it means each of the component parts of our solution, our policy traffic switch, our service delivery engine, and some other parts of our middleware and our analytics are deliverable, as a network functions virtualized mode, which means they run in a virtual machine, on commercial servers that are available out there. And what we are seeing, particularly in the mobile space right now, is people really wanting to move to that architecture. We think our hardware, our policy traffic switch, which we think is the best in the industry and we are really excited about our roadmap for it as well, is going to still be very relevant, particularly in the wireline side of things, where density performance per RAC unit and per amount of power are still very relevant.

You are right to say in the NFV world and the eventual software defined networking world is -- it’s generally seen as that it’s going to be something that you pay for, as it’s utilized, it could be -- likely be a recurring revenue basis. The initial deals might be smaller, but they will be more consistent than more realizable on a month by month, year by year basis.

And what we are hoping is that, what we are going to see with our early successes, is going to be incremental on some early adopters that want to go this way. But we do see that there is some expansion for our opportunity. We could hit much smaller service providers through hosted services, places where we don't spend any sales efforts today, and our partnership with ClearSky is a good example of that, where they will support some really small wireless ISPs throughout the United States.

And also, if you look at it from a -- where customers can start offering analytics-as-a-service to their business customers, let's say Cormark wanted to look at how their bandwidth is utilized on a moment-by-moment or weekly or monthly basis, they could sell -- your ISP could sell, Cormark Securities, that service. We think that is purely expansion for us, and so, we think we will get a whole bunch of new opportunities here, and as the trends evolve here over the next two to five years, are we going to be very well positioned to have that transitioned in our business, where it's largely software sale. Although we do believe that purpose built hardware is going to be very relevant on the wireline side for quite some time to come.

Does that help, Richard?

Richard Tse - Cormark Securities

Very much so. Thanks. Sounds like an exciting opportunity. Okay, that's all I have. Thank you very much.

Dave Caputo

Thank you.

Operator

Thank you. And our next question comes from Robin Manson-Hing from CIBC. Please go ahead.

Robin Manson-Hing - CIBC

Good morning. Operating costs again inched up a little bit, and you talked about sales and marketing beginning to ramp up, in terms of may be percentage of sales, how do you see this trend playing out over the next year?

Scott Hamilton

So our expenses as a whole, either from Q2 of 2013 or Q1 of 2014, once you adjust for government assistance, were relatively flat around $17.9 million. You're correct that our sales and marketing expenses have increased a little bit roughly, $100,000 from Q2 of last year. We have communicated and executed on increasing our investment in sales and marketing to scale that piece of our organization and moving some of that expense from other parts of the organization.

I think for 2014, once you adjust for the normalization of government assistance. In 2013, we communicated that our expenses aren't going to materially change up or down for 2014, that's at least our objective, and our focus for the rest of the year.

Robin Manson-Hing - CIBC

Okay. And that's as well in terms of percentage of revenue?

Scott Hamilton

That's in absolute dollars.

Robin Manson-Hing - CIBC

Okay. In terms of FX, the Canadian dollar increasing a little bit recently, how do you see that affecting earnings, we have been -- say next quarter, and moving forward? Any sensitivities around that?

Scott Hamilton

So year-on-year our FX maybe had a $200,000 positive impact on our operating expenses. Majority of our revenue and cost of sales are in U.S. dollars, so from a gross margin and revenue perspective, it’s relatively or its immaterial, doesn't impact it; because we are reporting in U.S. dollars. Roughly half our costs are in Canadian dollars, but we buy -- we employ a hedge strategy, so to the extent that the U.S. dollar swings, it’s probably a six to nine month delay, before you see the impact of that running to our OpEx.

Robin Manson-Hing - CIBC

Okay. And last question, over the last -- say since 2009, we have seen over 200 new customers and a little bit of a slowdown last couple of quarters, off very high highs in Q4. How can we think of new -- how far I guess in terms of penetration are you in terms of, especially cable and DSO -- is that the DSO to the new customers, that's pretty much, you added one, but is that -- can we kind of think of that as new customers being 50%< 75% wireless and just existing customers continuing to grow, moving forward?

Dave Caputo

So we think our solutions are relevant, wherever IP, internet protocol flows, and that is to say everywhere on the planet. I wouldn't -- I look at our installed bases and opportunity for us to expand those and switch to -- get some -- doing some more service creation and business intelligence. New customers are going to bounce around on a quarter-to-quarter basis, and we have had some record quarters recently with new customer wins. Seven for this quarter is low, but not unheard of relative to a couple of quarters we had last year.

I still think for the vast majority of service providers in the world are still selling internet connectivity in the traditional way. And so I still see it as pretty much an untapped market for service creation and business intelligence. And so, well, a customer for us is only new once, when we sell them a new solution to do things differently, that's -- we would still consider that expansion or expanding our opportunity with that customer; and while we'd rather always have a bunch of more new customers in any given quarter. I am not particularly fussed on the idea that we only had seven this quarter, or in any other quarter; because we recently had some quarters, where that number was very high as well.

Robin Manson-Hing - CIBC

Okay. Thanks guys.

Dave Caputo

Thank you.

Operator

Thank you. And our next question comes from Catharine Trebnick from Dougherty & Company. Please go ahead.

Catharine Trebnick - Dougherty & Company

Thank you for taking my question. Nice quarter guys. Mine has to do with -- besides the sponsor data, what would be some of the other value added services that you're seeing in the RFPs out there right now, and is -- that would be helpful in terms of the color. Is there any regions that are more -- you seem to see more traction right now with RFP activity and demand for your types of solutions? Thanks.

Dave Caputo

Okay. Hey Catharine. So the RFPs are often not on a used-case base. They are often technology based around, enabling the capability of making end-to-end policy -- putting end-to-end policy inside the network; and so RFPs are often named next generation policy deployment or policy control and charging capability in our network, you know that sort of thing. Don't think of the RFPs as saying, I am going to run this type of thing out there, this application based here or that sort of thing. And so, from the way you have asked the question, certainly, adding zero rating capability, not counting a particular application towards a quota is becoming very popular.

I spoke about the Whatsapp application where, SMS is going down for revenue for many service providers. Here Econet in Zimbabwe, they said rather than fight them, let's join them and let's enable a very low cost way of doing Whatsapp messaging. The idea that Smart could sell you internet access on a 15-minute or a daily basis, whether you're a subscriber or not, you could just get on the network and do that type of thing. And so, I think that is a real driver of box selling or buying internet access in a different way. But don't get me wrong, I am pretty excited about sponsored data over time here for sure; because just like the 1800 created billions of dollars in new revenue for the telcos, I think sponsored data will create billions of dollars of revenue for service providers.

Catharine Trebnick - Dougherty & Company

Got it. Thanks a lot. I appreciate it.

Dave Caputo

Thanks Catharine.

Operator

Thank you. And our next question comes from Deepak Kaushal from GMP Securities. Please go ahead.

Deepak Kaushal - GMP Securities

Hi. Good morning guys. Thanks for taking my questions. I just have a couple. First off, I was wondering if you could talk about the U.S. market, the wireless side in particular, what kind of activity are you guys seeing from the guys like the Big Four? Are you still seeing a fragmented approach to incorporate new value added services, or is this type of approach -- are you seeing any consolidation and how carriers are doing this?

Dave Caputo

Thanks Deepak. I guess I said this a few calls ago, we are not going to predict any revenue from the big guys in the U.S. on the mobile side, until we tell you about it, that has happened. Let me say, there are conversations, they are very robust on what it might look like to rollout specific services or a network analytics around business intelligence. But I think we lost a bunch of credibility a couple of years ago, when there were some very active RFPs that never came to past, and so I'd rather tell you about it when it happens as opposed to predict when it will.

But certainly there has been a very robust discussion in the U.S. around sponsored data, around prioritized traffic and that sort of thing, and I think that's all good things, it’s a precursor to technologies being required to enable many of the things that are being talked about.

Deepak Kaushal - GMP Securities

Okay, that's fair. Thanks. And then just kind of a follow-up Dave; when you look at your strategic investment plan over the next five years, I don't know if you can shed some light on some of the key areas of technology or the business side of things that you don't tend to focus on the most and can you continue to fund this kind of investment through your R&D, or maybe you can shed some more light on what [indiscernible] looking at for M&A?

Dave Caputo

So we certainly feel that over the next number of years, we can continue to grow organically. We think there will be opportunities to grow through acquisitions, if the right ones present themselves, and we think we will be able to grow organically via new technology innovations that we are working on in-house. But I don't think I'd like to get any more specific than that, because there is really no point in tipping our hand here; both for competitive reasons or overhang in the market in our install base.

Deepak Kaushal - GMP Securities

Okay, that's fair. I will pass the line. Thank you.

Dave Caputo

Thanks Deepak.

Operator

Thank you. And our next question comes from Naser Iqbal from Salman Partners. Please go ahead.

Naser Iqbal - Salman Partners

Thanks for taking my question. Just maybe following on some prior questions, but just -- Dave, if we look at the revenue growth, we had a couple of strong quarters, and I think this quarter was, as you said a quiet quarter. But what are the things you can publicly, I guess, give some metrics or any kind of a qualitative [indiscernible] in terms of -- what could be the driver for the strong back half, is it the funnel or just the activity level. I mean, what confidence would you have, that you could share in terms of the growth in the back half being strong?

Dave Caputo

Okay, Naser; I guess well I will start with this quarter each year, and if I didn't punctuate this point enough, I will, and that I can't remember how long you've been involved with the story here Nasser, but customer concentration used to be the big story with Sandvine.

When I could see that we could deliver almost $30 million of revenue without any really big-big deals, that gives me incredible -- I am very proud of how we have evolved this business over the past number of years. And so the fact that we could do this, just by servicing our customers and delivering some real value to them, that makes me quite happy. So I expect that to continue.

And then there will be some big deals in the quarter, in terms of there will be big deals in future quarters, I should say. So that will help us. The funnel supports growth, the funnel looks really good and it increasingly looks better. And then, we have been talking about application based tier, selling bandwidth different ways. We have been talking about this for a long-long time, and now we see more and more examples, service providers being very loud and proud about how they are selling bandwidth differently in their markets, and we are behind many of those stories, and so I guess that's what gives me the confidence to say that, I think we have made some really good investments and continue to make really good investments in, what I think is the most exciting aspect of network infrastructure for service providers.

There is no doubt, 10 years from now, people will be connected to the internet. There is no doubt, 10 years from now, service providers will exist to connect those people to the internet. There is no doubt, 10 years from now, bandwidth will be sold in a different way than it is today, and that's entirely Sandvine's business.

Naser Iqbal - Salman Partners

Okay, fair enough. And just, since 2009, I guess the issue of customer concentration, I mean that's no longer an issue. That's great. And in terms of -- Scott, I know you talked about gross margins earlier. But it would seem that if software is going to be -- in terms of your new product that has become more forward focused, but if software is going to become a bigger part of the product mix, is it fair to assume that the gross margins are going to benefit from that product mix shift?

Scott Hamilton

I don't think I said that, I thought the product mix -- we experienced the difference in product mix was sustainable or representative of perhaps what we would have seen short term. I think longer term, perhaps in an SFP or an NFP environment, we could see software become a greater portion of our revenue, but I think it’s too early in the cycle for us to really accurately guess on what that business model is going to look like. So I think it -- and the timing of when that revenue transition takes place. So I think forecasting how that would impact our margins or revenue mix at this point in time, it would just be purely a hypothetical guess that I just wouldn't be comfortable doing.

Naser Iqbal - Salman Partners

Okay. Fair enough. That's it for my questions. Thank you very much.

Dave Caputo

Thanks Naser.

Operator

Thank you. And our next question comes from Maher Yaghi from Desjardins. Please go ahead.

Daniel Rosenberg - Desjardins Securities

Hi, thank you. It's Daniel Rosenberg calling on behalf of Maher. I just had a quick question about your R&D spend. I was wondering how do you guys strike the balance -- how you will strike the balance moving forward between investing R&D in new products, versus improving the products that you launch, and the products that you had in the past? Thank you.

Dave Caputo

Thanks. Thanks Daniel. You know, when you look at the R&D investment here, we have got a great team that has to balance working on sustaining issues to work on issues that are -- we expect to deliver in the short to medium term, and then a level of investment that is more longer term focused.

I think we have made some very good trade-offs over the years. When we really look back, I guess three or four years ago and said, hey, we are going to invest quite heavily in service creation, in usage based billing, quote a manager, and basically our diameter stack here. I think we made some pretty good calls there, and this is the -- what you guys pay us for, our investors pay us for, is to make those decisions on whether there are various trade offs that we should make in those buckets. But it’s a very conscious understanding here in our organization, on how much is in sustaining, how much is in the short to medium term, and how much is long term. And we question ourselves on that every month or so, on what are the appropriate levels, and so we just want to balance, making sure we are taking advantage of the opportunity that's here in front of us, with the -- I think much bigger opportunity that's ahead of us, and so without getting into the specifics, just know it’s a very conscious decision that's being made [indiscernible] regular basis.

Daniel Rosenberg - Desjardins Securities

Okay, great. Thank you.

Dave Caputo

Thanks Daniel.

Operator

Thank you. And I am showing no further questions at this time.

Rick Wadsworth

Thanks operator. Okay, on behalf of Scott and Dave, thank you very much for your questions and for attending our conference call. We look forward to speaking with you again soon. Bye-bye.

Operator

Thank you. And thank you ladies and gentleman. This concludes today's conference. Thank you for participating, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Sandvine's (SNVNF) CEO Dave Caputo on Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts