Sandvine Corp's (SNVNF) CEO David Caputo on Q1 2016 Results - Earnings Call Transcript

| About: Sandvine Corp. (SNVNF)

Sandvine Corp. (OTC:SNVNF) Q1 2016 Earnings Conference Call April 7, 2016 8:30 AM ET

Executives

Richard Wadsworth – Director, Corporate Communications

David Caputo – Co Founder, President, Chief Executive Officer, Director

Scott Hamilton – Chief Financial Officer & Director

Analysts

Richard Tse – Cormark Securities

Paul Steep – Scotia Capital

Robert Young – Canaccord Genuity

Todd Coupland – CIBC World Markets

Daniel Chan – TD Securities

Kris Thompson – National Bank Financial

Maher Yaghi – Desjardins Securities

Deepak Kaushal – GMP Securities

Operator

Welcome to Sandvine's Investor Conference Call. My name is Paulette and I will be your 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 meaning of securities laws. Actual results could differ materially from the conclusion, forecast, or projection contained in such forward-looking information. Certain material factors or assumptions were also applied in drawing a conclusion or making a forecast or projection as reflected in such forward-looking information.

Additional information about the material factors that could cause 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 conclusion or making such forecasts or projections are contained in the company's Annual Information Form and in other filings made by the company with applicable securities regulators from time to time, all of which are available through SEDAR at www.sedar.com.

I will now turn the call over to Rick Wadsworth. You may begin.

Richard Wadsworth

Thank you, operator. Hello and welcome to Sandvine's first quarter 2016 results conference call. During the call, we will walk through a slide presentation that you can download from the Investor Relations section of our website sandvine.com. For those of you following along, we're currently on slide 2. We'll 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, Sandvine will refer to certain non-IFRS financial measures such as EBITDA and EBITDA per share which represent net income and related per share amounts excluding interest, taxes, depreciation, and amortization. A reconciliation of IFRS to non-IFRS results is included in today's news release, the presentation accompanying today's call, and in the company's management discussion and analysis which we filed on SEDAR.

Management uses these non-IFRS measures to evaluate the 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.

David Caputo

Thanks, Rick. I'm on slide 3. Sandvine achieved record first quarter revenue of $34.2 million, an increase of 5% compared to the same quarter last year. We continue to see network upgrades to our 100-gigabit Ethernet Policy Traffic Switch, our PTS 32000, result in significant orders. During the quarter, we received an expansion order for more than $5 million from a tier-1, fixed-line operator in Asia. The operator is a long-time Sandvine customer and is using the PTS 32000 to enable traffic optimization and the creation of new revenue-generating service plans.

We were also able to recognize significant revenue in the quarter from a PTS 32000 order we secured at the end of 2015 from a major cable operator in North America. As we've highlighted previously, the PTS 32000 remains far and away the best performing 100-gigabit Ethernet network policy control platform available in terms of throughput per watt and per rack unit, metrics that matter to operators in the real world.

Slide 4. EBITDA was $8.8 million dollars in the quarter compared to $11.7 million in Q1 last year with the difference attributable to a gain on the sale of our investment in Xerocole to Akamai recorded in Q1 last year. We are pleased with our revenue growth and our ongoing profitability. We have now been profitable in 14 consecutive quarters, a significant differentiator between Sandvine and some of our competition. We won an impressive 22 new customers during Q1, most of which were wireless or converged network operators.

I'll now ask Scott to review Q1 results in more detail.

Scott Hamilton

Thanks, Dave. I'll remind investors that Sandvine reports its financial results in U.S. dollars. Slide 5. Revenue for the fourth quarter was $34.2 million, up 5% compared to Q1 of 2015. Product revenue was 68% of revenue and service revenue was 32% of the total. 44% of our revenue came from North America, 25% from EMEA, 20% from AsiaPac and 11% from CALA. Wireless and other markets contributed 47% of revenue. The cable market contributed 36% and the DSL market contributed 17%. Our reseller partners fulfilled 47% of total revenue for the quarter and 53% came through the direct sales channel.

Slide 6. The North American cable customer that Dave mentioned represented 22% of revenue in the quarter. 11% of revenue came from a reseller that sold product to two customers in the quarter, including the Tier 1 Asian customer that Dave referenced. We remain pleased by the diversification of our customer base.

Slide 7. Our blended gross margin in the quarter was 76%, the same as in Q1 of 2015. We continue to target a 70% plus blended gross margin. Total OpEx in the quarter was $18.7 million, up 8% compared to Q1 of 2015 largely as a result of the higher sales and marketing expenses, which is consistent with additions to our sales team that we made throughout 2015. We expect these investments and the sales team to translate to higher revenue and earnings in future periods.

With the recognition of our deferred tax asset in Q4 as well as the acquisition of MoMac and Teclo, which increases intangible amortization expense, management is now using EBITDA as a useful measure of our performance. Accordingly, we believe that EBITDA may be a useful non-IFRS measure for investors also.

EBITDA in Q1 2016 was $8.8 million or $0.06 per diluted share compared to $11.7 million or $0.077 per share in Q1 of 2015. The difference is attributable to a onetime $2.8 million gain on the sale of our investment in Xerocole recorded last year. Absent this amount, EBITDA was essentially flat.

Cash and investments at the end of Q1 was $144.2 million, down from $145.3 million at the end of fiscal 2015. We generated $6.3 million in cash from operating activities, but this was offset by $3.3 million used to repurchase approximately 1.4 million common shares, $1.2 million used to purchase shares under our share unit plan, $1.8 million used for the payment of the first quarter dividend, and $1.2 million for the purchase of capital asset. Since quarter-end, we have purchased an additional $1.1 million shares for a total cost of $2.3 million or CAD 3.1 million. Our current buyback program will be in effect through October 12, 2016. Bookings in the quarter were less than total revenue for the period.

Slide 8. Sandvine announced a quarterly dividend of CAD 0.0175 per common share. The dividend is payable on May 8 to shareholders of record as of the close of business on April 20. As previously announced, Packet Intelligence Limited (sic) [LLC] (08:14), or PIL, who is a non-practicing entity, or NPE, has filed a patent infringement lawsuit against Sandvine in the Eastern District of Texas.

PIL did not communicate with Sandvine in advance of filing its lawsuit. We are currently in the process of evaluating the patents, as well as the claims in the suit, but at this time, we believe the lawsuit is meritless, and we will aggressively defend against the allegations. We also understand that current U.S. law does not permit NPEs to obtain injunctive relief while this matter plays out.

Absent obtaining an extension, Sandvine intends to file its response to the complaint on April 15, rejecting PIL's allegations. We have recently retained Eric Buresh from the firm Erise IP to assist with our defense. We will endeavor to keep you updated as significant developments occur, but I do not expect any prior to our next conference call.

As on all of our previous calls, we caution 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 period. Most notably, it may result in significant variation of reported revenue and gross margin on a quarter-to-quarter basis.

I'll now return the call to Dave.

David Caputo

Thanks, Scott. Slide 9. We outlined six growth strategies for you at the beginning of the year. They were: one, to continue to expand our lead in our traditional areas of strength, subscriber services, business intelligence and traffic optimization; two, to take advantage of the leadership position of our PTS 32000 in the 100-gigabit Ethernet upgrade cycle; three, to further enhance our cyber security offerings; four, to gain traction in business services with our fully virtualized cloud services policy controller; five, to take advantage of the current PCRF or policy server upgrade cycle; and six, to look at acquisitions that could accelerate growth.

I'm pleased that we made progress on all of these strategies in the first quarter. During Q1, we announced and have recently closed the transaction with Teclo Networks. The acquisition has led Sandvine launch our TCP Accelerator product for mobile operators, part of our traffic optimization suite.

Sandvine TCP Accelerator enhances the quality of experience for mobile Internet subscribers on 2G through 5G networks, reduces the risk of subscriber churn, extends network life and is entirely unaffected by encryption. By contrast, alternative traffic optimization techniques, like video optimization and content caching, are seriously impacted by encryption.

Our own Global Internet Phenomena spotlight in the quarter forecast that 70% of global Internet traffic will be encrypted in 2016 with many networks exceeding 80%. Some of our competitors are walking away from traffic optimization while there's still a genuine and significant market need. Sandvine's TCP Accelerator is a great opportunity for us to extend our lead in the important traffic optimization space.

Other successes in Q1 from our traditional offerings include the $5 million order from a Tier 1 Asian operator related to traffic optimization, subscriber services and our market-leading PTS 32000 and our success at Webbing, an MVNO that is using a fully virtualized solution to enable data roaming services for business users in over 170 countries.

During Q1, we also dramatically enhanced our cyber security offering. Since our early days, Sandvine has been effective at mitigating certain network threats like outbound spam, distributed denial of service attacks and botnet command and control communications. In February, we announced enhancements of these capabilities through a partnership with Symantec.

This established feature set will let us help CSPs, communication service providers, provide subscribers and their infrastructure – protect subscribers and their infrastructure in a number of ways, including subscriber phishing and malware protection to help prevent subscribers from accessing malicious sites and becoming victims of ransomware and a deeper understanding of network attacks to empower CSPs with up-to-date and actionable intelligence about the malicious IP addresses conducting attacks.

While unannounced in the first quarter, we also had new wins for our PCRF product, our Service Delivery Engine; and for our Cloud Services Policy Controller. These successes advanced the final two growth strategies I outlined.

While we do not provide guidance, I will highlight two facts that we have pointed out previously, which may help you develop your financial models. Sandvine has always earned more revenue in the second half of the year than the first. And in the previous four years, second quarter revenue has been lower than first quarter revenue. This is likely explainable by the fact that our first quarter includes the month of December, during which our customers are frequently spending lots of their annual budgets.

I'd like to thank everybody on team Sandvine for a strong start to the year. We are excited about the opportunities in 2016 and beyond.

Operator, we will now take questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Richard Tse from Cormark Securities. Please go ahead.

Richard Tse

Yes. Thanks. Dave, I was wondering if you could sort of give us a bit of color in terms of the upgrade market. What percentage of that base have you penetrated already with the PTS 32000?

David Caputo

Thanks, Richard. So, we're really excited about the PTS 32000. And as sure as the sun is going to come out tomorrow or eventually this summer, everyone will be upgrading their networks to 100-gigabit Ethernet over time. We have approximately 20 customers that are using the PTS 32000 in production networks right now. But we have – approaching our likely over 300 customers overall. And so, the penetration is still early, but it's an undeniable trend that everybody eventually will go to 100-gigabit Ethernet interconnect in their networks.

Richard Tse

Okay. And I guess, on that note, of the 300 overall, can you talk about how many that you're currently being engaged in, in terms of pitching them the 32000?

David Caputo

So, the beauty of our architecture is it's the exact same software across our entire platform be it virtual or any of our 10-gigabit or 100-gigabit Ethernet products. And so, the idea is that everybody is eventually going there and we'll be ready for them when they are because it isn't a point of just upgrading us in the network, it's all the interconnect. So, all the switches and routers that they have to go through that upgrade cycle to be ready to connect us into it.

And so, I would say we're engaged with all of them. Certainly, smaller ones, it will be a while yet before they have the requirement for it. But there's active engagements on selling our solutions and the enabling technology of 100-gigabit Ethernet is whether they need it in their network or not.

Richard Tse

Okay. Thanks. And maybe give us a bit of perspective or your perspective, at least, on the current spending environment and maybe some color in terms of whether there's been any change in the likelihood sales cycles.

David Caputo

So, I spoke a couple of times, probably starting in the Q3 of last year, about the sales cycles being long and lengthening. And I would say it's still feeling like that that it's taking us approximately, on average for our larger deals, around nine months to close business. And I don't see anything to tell me that that's changed one way or the other.

Richard Tse

Okay. That's great. Thank you.

David Caputo

Thanks, Richard.

Operator

Our next question comes from Paul Steep from Scotia Capital. Please go ahead.

Paul Steep

Great. Thanks. Dave, maybe you could talk a little more about the agreement with Symantec. Is there a joint development agreement or joint go-to-markets? How should we think about the timing ultimately of the launch there as well?

David Caputo

Okay. Thanks, Paul. So, we're really excited about our partnership with Symantec. Obviously, a very proven security capable company out there. We have engaged in a number of cross training of our sales teams on this. They were at our global sales rally recently. They have a number of feeds that they're making available to us that we've licensed from them to understand malicious traffic and malicious phishing sites and ransomware, CryptoLocker and that sort of thing. So, I would say our sales team has been fully trained on this, and we are actively selling it and demonstrating it now. I expect this to translate into noticeable revenue throughout this year.

Paul Steep

Great. I guess a second one or a follow-up from me for Scott. The book-to-bill comment that you made, should we think of that as normal seasonality that Dave sort of alluded to in the Q1 to Q2 dropdown? Is that what you saw in the book in the quarter?

And then, secondly to that, working capital, if you could talk a little bit about just some of the efforts there around trying to drive down DSOs, that would be great. Thanks.

Scott Hamilton

Sure. So, with respect to book-to-billings, I think we've always said that they're not always necessary indicative of what next quarter revenue will be. We provide the metric just because some of our competitors had and investors were asking us to do so. So, for the last few years we've done that. Sometimes, it will be positive in quarters where we've declined. Sometimes it'll be negative [indiscernible] where we've grown.

We don't always necessarily believe that we should look at that as being indicative of what we will do in the next quarter. That being said, everything that Dave said with respect to Q2 is just factual. And I'm not sure that I would tie what our book-to-billings was this previous quarter with Dave's comment with respect to Q2 and half one versus half two.

With respect to working capital, our DSOs – when I think about receivables, I usually think that they're slightly more than what our previous quarter revenue was. This past quarter, we're maybe $10 million higher than that. I think what we're seeing is just, in some certain cases, customers are using payment terms as one of the items that they're using to select a vendor and there were just a number of small-corner cases that resulted in our AR spiking . I'm not ready to call it pervasive yet, but that's we expect to see moving forward. But we'll just need to monitor and see if the environment has changed.

Paul Steep

Great. Thank you.

Operator

Our next question comes from Robert Young from Canaccord Genuity. Please go ahead.

Robert Young

Hi. Good morning. I was hoping you could give us a little more detail on the new customer wins in the quarter. You said 22, a lot of them wireless. Is there anything specific that's driving that volume? Is it a number of smaller customers, or is it something to do with the 100-gig interest? Or is it something else? Any information there.

David Caputo

Hey, Rob. I'd say the things that I most attributed to was our increased investment in our sales team. Certainly, the number of opportunities that they're developing in our funnel continues to grow as we add folks to that team. And we're always thrilled with new customers at Sandvine and I was glad to see that result at the end of it. Certainly, there was some – a couple of big ones, but there was a lot of small ones in there as well, and we're trying very earnestly to earn new customers business. And other than saying it was mostly wireless and converged, I don't know if there's really any other identifiable attribute that I could mark that up to other than the growth in our sales team.

Robert Young

Okay. And if I could maybe dig into OpEx here a little bit. Looking forward, it's up about, I think, a little over $1 million year-over-year. And I guess there's some cost in there from MoMac and presumably some will come in from Teclo here in Q2. I was wondering if you could give us an idea of what you expect for the year. And should we think of sort of $17 million, $18 million level kind of for this year? Or what should we be thinking?

Scott Hamilton

Yes. Thanks, Rob. So, I would probably echo the comments that I made on our Q4 call, in that the cost structure at Sandvine hasn't changed and I don't expect it to really change in FY 2016. I think what we saw in the current quarter, there were probably some factors that might have helped keep the OpEx down. There's some seasonality with guys flying and travel-like costs because of the December-January timeframe. We had our December month, so people take a bunch of vacation in December, so that will reduce expenses. I think Q4 is more indicative of the cost structure that we had in place and what maybe we'll see quarter-to-quarter moving forward. But that being said, it will oscillate for sure just depending on activities that happen in any given quarter.

Robert Young

Okay. And the grant, the $15 million grant from Ontario over a long period but – is there anything we should model for that? Or how should we model that?

Scott Hamilton

Yeah. So, we're pretty pleased to be part of that program. The timing of when that will start is a little bit uncertain. We're just finalizing some of the administrative tasks, the formal agreement, et cetera, on it. So, I'm a little bit hesitant to say which quarter that's going to commence, hopefully sooner than later.

And obviously, with Teclo closing after the end of the quarter, we'll pick up a little bit of expenses associated with that. So, while they're completely unrelated, maybe they're awashed when we do pick them up.

Robert Young

Okay. And could you give us any update on the business services? Can you talk about the traction there? When should we expect to see a meaningful level of revenue that you had called out? And then, I'll pass the line. Thanks.

David Caputo

Thanks, Rob. So, still very excited about our Cloud Services Policy Controller, which will enable our communication service provider customers to resell our network policy control offerings to their business customers. And it allows us to sell to another part of the service provider towards delivering those business services.

We won a few more new customers this quarter. This is still very early days. The concept of sort of network-as-a-service and policy-control-as-a-service delivered by service providers is still a brand-new market and every when we're learning more stuff about how they're going to sell and market that.

And so, while all the deals are quite small and it really is a pay-as-you-grow model, it's not a big bang model that as they get customers we get more licensing revenue and we're really hoping to sell that as subscription revenue, which allows the service provider to pay as they add more customers.

So, I don't think it'll move the needle this year, but every win is important to us and it really sets good foundation for the future because I think it will be a very decent sized market as we move forward.

Robert Young

Is there any way to quantify or size the level of recurring revenues that you have now you have MoMac and you have the enterprise services growing and some NFV contract? Is there any way to help investors understand just how much of that is subscription or recurring?

David Caputo

Yeah. Certainly, as it becomes material, we'll disclose it but I'd characterize it as still relatively normal at this point.

Robert Young

Okay. Thanks.

Operator

And our next question comes from Todd Coupland from CIBC. Please go ahead.

Todd Coupland

Yeah. Good morning, everyone.

David Caputo

Hey, Todd.

Todd Coupland

Just quickly on OpEx – go back to that for a second, if I could, Scott. So, $18.7 million in the quarter. $20 million last quarter. You're basically saying the run rate is more likely to be around $20 million plus a little bit for the M&A. Is that what you're saying?

Scott Hamilton

Yeah. I think our cost – yeah, so, for the most part, our cost structure in 2016 is consistent with where we ended 2014 and – or, sorry, 2015. And when you look at even last year from Q1 to Q2, our OpEx increased by $1 million. So, you sort of – if you triangulate those two or three points, I think everything you said is reasonable.

Todd Coupland

Okay. That's helpful. Thank you. And, Dave, just wondering, with all the trends that are going on in the market, you're kind of mid-single digits growth rate. Your peers are not too terribly much above that, definitely in the single-digit growth range. Does it feel like that is likely the growth rate that 2016 will look like?

David Caputo

I'm trying not to say anything that sounds like guidance. What I'll say is we've outlined the five or six ways that we think we're going to grow including some of the acquisitions that we recently made here, and we see opportunities to grow. We see the number of opportunities in our funnel growing and, certainly, when we compare it year-over-year.

And so, I'll just go back to we've had a 5% increase to start the year here, and we always do more revenue in the back half than the first half. And growth will be an outcome of our strategy here and our execution against it. But I'm not going to say it feels like one number or another.

Todd Coupland

Okay. That's fine. Thank you. And just on this whole encryption point you were making earlier in terms of what you think is a developing edge for the company, how important is this? You do see discussions in the trade around encryption potentially being an issue for the sector overall. Can you maybe just dig into that and talk about what your edge is and how much of a problem it is for other players in the market?

David Caputo

Yeah. So, Sandvine has never focused on what the content of a packet was. We've always focused on what the application that was generating the packet is. And so, if you think about the types of services we've created, they're generally application-based services, but we could care less about the content of the phone call. We could care less about the actual video that's being watched right now. When I say we care less, we don't even go to that level.

When you look at TCP Accelerator, you're using one level below that. TCP is the underlying protocol of the Internet TCP/IP and there's some tricks we could do and some algorithms we could do to accelerate that to bring up a website quicker to give you a more [indiscernible] with the level of CapEx that service providers invested in their network.

And so, networks are going to still be running hot. Networks are going to continue to experience increased growth by their subscribers, the amount of bandwidth that's being used. And so, I think the idea that you can play these other tricks like video optimization or video caching, where you're storing a copy of that video to be delivered to someone else or changing the resolution of the video in midstream, those are incredibly more difficult to do in the encrypted realm.

And so, our abilities to identify the applications continue to be good and we've got white papers on this and a bunch of resources on our website that you can learn about what encryption means to Sandvine and our delivery of it. But with having TCP Accelerator now, it gives us another great feature and product to sell to our customers who are still wrestling with their bandwidth growth, significantly outstripping their revenue growth on their – the service providers' networks.

Todd Coupland

Great, Dave. Thanks very much. That's helpful.

David Caputo

Okay.

Operator

Our next question comes from Daniel Chan from TD Securities. Please go ahead.

Daniel Chan

Good morning, guys. How much more do you have of the large orders that you announced at the end of the last year to ship?

Scott Hamilton

So, the large orders that we recognized in Q4, the most of it has been recognized. There's a little bit that's still left in 2016 – or the remainder of 2016, but most of it was recognized.

Daniel Chan

Okay. And then, on – the SEC passed some privacy rules saying what you can and cannot do with customer information. Will that have any impact on your business at all?

David Caputo

Yeah. I'm going to ask Rick, our resident network neutrality guru, to answer the question.

Richard Wadsworth

Yeah. Hey, Daniel. So, they haven't actually passed a rule. They've actually just launched a notice of proposed rule-making, which is the typical process they go through when considering whether additional guidance and rules are necessary.

So, there are some embedded in the title, too. There are some rules there, but they're going through an NPRM to get more guidance from the industry on that whole issue of Internet privacy. We'll no doubt contribute as we usually do to these sorts of things. So, it's in the future to be determined at this point in time. And until that's processed, there won't be a whole lot more to say.

Daniel Chan

Okay. Great. Thanks.

Operator

Our next question comes from Kris Thompson from National Bank. Please go ahead.

Kris Thompson

Great. Thanks. Scott, just to circle back to the $15 million Ontario ITC program, is that based on a number of heads being added? And can you just talk about the maximum amount of people you need to hire and over what period they get the full $15 million? Is that possible?

David Caputo

Yeah. So, it's – I think you referenced it as an ITC program, if I heard it correctly. It's not similar to the ITC program that's run through the TAC system. It's a contribution, a percentage of expenses. Over the project, we have indicated that we will hire 75 people. It's an eight-year project. Those hires, it's a cumulative number. So, while we have in our proposal those hires are staggered over time. Just depending on business needs, we'll either hire them sooner or later and the numbers will follow [indiscernible]

Kris Thompson

Okay. So, it's 75 over 8 years?

David Caputo

Yes.

Kris Thompson

Okay. Thanks. And just the new customers added in the quarter, the 22, where – is that including the Teclo Networks acquisition? And how many were from Teclo?

David Caputo

No, it does not include Teclo.

Kris Thompson

Okay. And I don't know, Dave and Scott, if you can mention the percentage of revenue in the quarter from a 100-giga upgrade. Another question was asked about the penetration into your base, but how much of your revenue was 32000?

David Caputo

We haven't disclosed it, but I would say it was material.

Kris Thompson

Okay. And just the last one from me. On the Accedian partnership, can you maybe give us a little bit of highlight of that development and how the pipeline looks and what we should expect? Thanks.

David Caputo

Yes. So, Accedian, a Canadian company – Québec-based Company, makes some modules that make our Cloud Services Policy Controller for business customers' deployment significantly easier for customers who are using the type of networks and technologies that Accedian plugs into. A great bunch of guys. We had a great time demonstrating each other's technology at Mobile World Congress. As our Cloud Services Policy Controller business develops, we hope to have more wins with those guys.

Kris Thompson

Okay. Thanks, guys.

David Caputo

Thanks.

Operator

Our next question comes from Maher Yaghi from the Desjardins Capital. Please go ahead.

Maher Yaghi

Yes. Thank you for taking my question. Good morning, guys. I wanted to ask you regarding the number of clients you signed up, as we – as you gained success on the enterprise side, will you be breaking up maybe the number of customer wins based on the technology or type of customer?

I'm trying to figure out, like, when you look at a typical customer on the enterprise side, you compare them with your traditional business comparatively in terms of revenue generation per customer, in terms of margin contribution per customer. Can you maybe talk a little bit about the business profile differences?

Scott Hamilton

Yeah. So, I would say that, to the extent that we develop a market outside the CSPs, it's quite likely that we will disclose relevant metrics around that vertical. To-date, it hasn't been material, so we haven't done it. What we would disclose, I'm not entirely sure, but I think that information is relevant to investors. We will certainly get it out there.

David Caputo

Yeah. I will just maybe add to that, Maher, that we'd love to sing from the roof tops as that business develops. It's not meaningful now in terms of or our subscription recurring revenue there, but there's no question that we believe it could be a meaningful contributor in the future. And again, I'll just repeat that it'll be through the communication service providers through their carrier cloud offerings that they would deliver this to their customers.

And so, as we get more wins and that dollar amount becomes more meaningful, we'd love to get that out there.

Maher Yaghi

Okay. Great. Looking forward to that. And then in terms of the revenue growth trajectory, you mentioned that even though the second half usually is typically better than the first half. When we look at the year-on-year changes, I mean last year, you've had the cycle of contract signings stretch a little bit, which affected your midyear results, let's say. How should we look at the growth year-on-year as we transition through this period? We should be more concentrate on the quarter-over-quarter revenue differential that we've seen historically or that kind of midyear decline that we saw is more typical of what we should be expecting going forward.

David Caputo

I guess what you should expect, I'm going to leave that to you guys. We're just pointing out the fact the last four years, Q2 has been lower than Q1and it's always been bigger in the second half than in the first half. Certainly, we provide the year-over-year results differences and we're 5% up from last year. But I don't know if there's anything more I could say to that.

Maher Yaghi

No. That's actually helpful. So – and finally, just in terms of – you seemed to have started to make more references to EBITDA and in terms of EBITDA generation per share, et cetera. I'm trying to figure out what was behind that focus and why you're looking at that specific metric.

Scott Hamilton

Yeah. So, EBITDA this quarter is the first time we've ever put it in our documents and calculated it for investors as a non-IFRS measure. The reason for doing it is twofold. If you recall, last quarter, we booked a $19 million or $20 million tax asset on our balance sheet. And so, now our earnings are being taxed and that results in about a 25% tax provision running through our line that while it's – from an accounting standpoint, it's in accordance with the rules that are set out, it's not an actual cash charge. And so, we think for comparability purposes, given that the previous quarter numbers didn't have that charge, that it's useful from a comparability perspective.

Also, given that we've done two acquisitions recently, there's an amortization expense running through the P&L. From our perspective while obviously we paid to acquire that asset, there's a non-cash charge running through the statements now. Internally, it's how we're looking at it. And so, we're just sharing with investors that, given those two dynamics for comparability purposes, we think it's a useful measure. Some investors may agree, some investors may disagree but it's there for people to assess.

Maher Yaghi

That's fair. And lastly, in the quarter, in addition to the dividend payments, you proceeded in buying back additional shares. Can you maybe talk a little bit about how you view stock buybacks continuing throughout the year? What's your type of – let's say, if we have to look at your expected buyback for the – I'm definitely not looking for quarterly breakdowns but how much should we look at in terms of budgeting, in terms of shared buybacks for the year?

Scott Hamilton

Yeah. So, obviously, capital allocation is something we discuss with the board from quarter-to-quarter. So, my answer to that's a little bit dependent on the outcome of those conversations. But that being said, if you look at the NCIB that we had in place for 2014 as well as the existing one that's in place, we spent over CAD 20 million buying back our stock. Certainly at these prices, I would expect us to continue to buy back stock and allocate some of our capital to that. The program continues in – or the NCIB is in place until October 2016. So, to the extent of our current levels, I expect we'll continue to be active.

Maher Yaghi

Okay. Thank you very much.

Operator

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

Deepak Kaushal

Hi, guys. Good morning. Thanks for taking my question. I only have one question, Dave. 10 years ago, you had this vision that Internet would become more complex with the data explosion and that Sandvine could bring intelligence in monetization. This is a $120 million, $130 million, whatever you want to call it, business today. What do you see over the next 10 years that could bring in the next $100 million to $200 million annual revenue business? Is this just more complexity, more diversification for Sandvine as an enterprise? What's the vision you have for where this could go for the next 10 years?

David Caputo

Thanks, Deepak. Well, first of all, I'll start off with the very big difference between 10 years ago and today is there's significantly more people and things connected to the Internet than there was back then, and the ability to consume significantly more bandwidth on a per user, per thing has gone up tremendously, as many of us would've expected.

And so, the real big difference over the next 10 years will be complete ubiquity where the lion's share of everybody – all humans on the planet will be connected to the Internet and many billions of more things will be connected to the Internet. And the constant will be that there will be service providers, and they may be different than the service providers of today, but there will be people delivering the network infrastructure to connect those people to the Internet.

Sandvine wants to be the easiest way for those people to sell the Internet differently, whether it's a connected car or it's a connected thing of some sort that those infrastructure providers are going to have to come up with innovative plans to have good business models to connect those things to the Internet. Those things are going to have to be secure from outside attacks. People are going to need business intelligence on what the different demographics and what analytics they need to understand on how that business model works for them and is it performing.

And so, I think the difference between then and now and now and in the future is the ubiquity that's going to come and the new business models that will have to evolve as everybody and everything is connected to the Internet. And Sandvine has nonstop been investing in being that infrastructure partner for those people delivering the Internet connectivity to those people and things. And we just want to be the absolute easiest folks for rolling out new services, and protecting those services, and giving the business intelligence on the success of those services.

Deepak Kaushal

Okay. That's helpful. So, is it fair to then if I were to simplify it down from here to say this is the same path of increasing complexity and increasing use of the Internet that Sandvine's helping customers manage going forward and monetize going forward? It's the same path that's getting bigger and more complex.

David Caputo

Sure. To the extent that the path of complexity seems like a path but, to me, it seems like just something to be navigated because the understanding of the complexity really, really – although it doesn't seem like the Internet has changed much, our Global Internet Phenomena Report show that it sort of changes invisibly every six months with people, different trends and different things happening on the Internet. But if you could draw a straight line from complexity to complexity, I'd call that a path, but if not, I would just say it's a bunch of really smart engineers figuring out really tough problems for service providers who are trying to have ongoing business models for delivering connectivity to the Internet.

Deepak Kaushal

Okay. Great. And then out of the six growth paths that you guys are pursuing and you outlined the last quarter and again today, are you willing to kind of hint or suggest which one of those can drive the next $100 million of annual revenue? Which is the first course that could meaningfully change the business here?

David Caputo

Yeah, for me, driving revenues for service providers, I think, is the most meaningful business. If you think of almost any business, they would rather have more sales than figure out how to cut more costs. While we absolutely help cut costs or defer capital with our traffic optimization business, creating new revenue streams either from consumers or for business and customers, I think, is going to be the real driver for Sandvine over time.

Deepak Kaushal

Okay. So, I would kind of interpret that as enterprise and policy charging and rating rather than upgrade cycles and traffic optimization. Is that fair?

David Caputo

Sure.

Deepak Kaushal

Okay. No, I appreciate the time and thank you again for answering my questions.

David Caputo

Thanks, Deepak.

Operator

And that was our last question. I will turn the call back to Rick Wadsworth for closing comments.

Richard Wadsworth

Thanks, operator. On behalf of Scott and Dave, thanks, everyone, for your questions and for attending Sandvine's conference call. We look forward to speaking with you again soon. Bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, and you may now disconnect.

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