Procera Networks Announces Second Quarter 2013 Financial Results

Second Quarter Revenue Grew 22% Year-Over-Year to $17.8 Million Expanded Partnerships With Tata Communications and Openet

Marketwired

FREMONT, CA--(Marketwired - Aug 7, 2013) - Procera Networks, Inc. (NASDAQ: PKT), the global intelligent policy enforcement company, today reported financial results for its second quarter ended June 30, 2013.

Revenue for the second quarter of 2013 was $17.8 million, up 22% from revenue of $14.7 million in the second quarter of 2012.

GAAP net loss for the second quarter of 2013 was $3.3 million, or a loss of $0.16 per diluted share, compared to net income of $766,000, or $0.04 per diluted share, for the second quarter of 2012. Non-GAAP net loss for the second quarter of 2013 was $0.3 million, or a loss of $0.02 per diluted share, compared to non-GAAP net income of $1.4 million, or $0.08 per diluted share, for the second quarter of 2012. A description of the non-GAAP financial measures and reconciliation to comparable GAAP measures is provided in the accompanying table entitled "Use of Non-GAAP Financial Information" below.

"Procera continues to execute on the initiatives that will position us as a leader in our market and expand our customer base. We recently made a number of announcements that show the progress we are making winning large deals and partnering with influential industry players. In addition, the integration of Vineyard has gone well and performance is strong, with revenue up 63% sequentially," stated Jim Brear, President and CEO of Procera Networks. "The strategic investments we are making in the business continue to position us well for long-term growth."

Second Quarter 2013 Business Highlights

  • Added 10 new service provider customers during the second quarter, including two mobile operators.
  • Booked four Tier 1 service provider expansion orders.
  • Vineyard Networks, our acquisition completed last quarter, grew revenue 63% sequentially in the second fiscal quarter.
  • Selected for important partnership with Tata Communications in which Tata leverages our ability to quickly offer revenue generating services with a high ROI.
  • Partnered with Openet to launch revenue express solutions for mobile operators.
  • Launched Virtualized PacketLogic™, reducing the cost of acquisition and ownership for Internet Intelligence solutions and moving to a much faster service delivery method, all with the same software functionality as current hardware platforms.
  • Announced our Dynamic LiveView product, which provides unparalleled real-time visibility for network operators to troubleshoot and conduct forensic analysis on their network.

Guidance
Procera is reiterating its guidance for annual revenue growth of at least 30% for 2013. The Company expects to gain market share in 2013. 

This guidance is an estimate only and actual performance could differ. The Company's financial results historically have been volatile, and a number of uncertainties and other factors may cause the Company's prior results, performance or achievements to be materially different from future results.

Conference Call Information

Procera Networks, Inc. is hosting a conference call for analysts and investors to discuss its second quarter 2013 results and outlook for its third quarter of 2013 at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, August 7, 2013. A live audio webcast of the conference call along with supplemental financial information will also be accessible from the "Investors Relations" section of the Company's website at http://proceranetworks.com/investors. A replay will be available following the call on the Company's Investor Relations website or for one week at the following numbers: (800) 406-7325 (domestic), (303) 590-3030: (international) using ID# 4629852. An archived version of the audio from the call will be available for at least thirty days on the Company's website at http://proceranetworks.com/investors.

Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements related to Procera Networks, Inc., including statements about Procera's expectations for 2013 revenue growth and long-term growth, the market opportunity and an increase in the Company's market share over 2013, as well as the Company's general outlook. Statements in this release that are not historical or current facts are forward-looking statements. All forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, without limitation, risks and uncertainties related to the acceptance and adoption of Procera's products; the Company's ability to service and upgrade its products; lengthy sales cycles and lab and field trial delays by service providers; its dependence on a limited product line; its dependence on key employees; its ability to compete in our industry with companies that are significantly larger and have greater resources; its ability to protect its intellectual property rights in a global market; its ability to manufacture product quickly enough to meet potential demand; its ability to continue to integrate Vineyard Networks and realize anticipated benefits from the acquisition; and other risks and uncertainties described more fully in the Company's documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Procera Networks' business are described in the "Risk Factors" sections of its Form 10-K filed for the year ended December 31, 2012 and its Form 10-Q filed for the quarter ended March 31, 2013, and other reports filed with the SEC, which are available free of charge on the SEC's website at http://www.sec.gov or on Procera's website at http://www.proceranetworks.com. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this press release are based on information available to Procera as of the date hereof, and the Company undertakes no obligation to update, amend or clarify any forward-looking statement for any reason.

Use of Non-GAAP Financial Information
In addition to the financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables and the related earnings conference call contain certain non-GAAP financial measures. Our management regularly uses these supplemental non-GAAP financial measures internally to understand and manage our business and forecast future periods and believes that these non-GAAP financial measures, when taken together with the corresponding GAAP measures, provide incremental insight into the underlying factors and trends affecting both the Company's performance and its cash-generating potential.

Our non-GAAP financial measures include adjustments for stock-based compensation expenses; business development expenses; and acquisition-related intangible asset amortization, deferred compensation amortization and tax effects. We have excluded the effect of stock-based compensation; the cost of outside professional services for negotiating and performing legal, accounting and tax due diligence for potential mergers, and acquisitions; and acquisition-related intangible asset and deferred compensation amortization, and tax effects, from our non-GAAP gross profit, operating expenses and net income measures. Stock-based compensation, which represents the estimated fair value of stock options and restricted stock granted to employees, is excluded since grant activities vary significantly from quarter to quarter in both quantity and fair value. In addition, although stock-based compensation will recur in future periods, excluding this expense allows us to better compare core operating results with those of our competitors who also generally exclude stock-based compensation from their core operating results, and who may have different granting patterns and types of equity awards and who may use different option valuation assumptions than we do. Business development expenses are necessary as part of certain growth strategies, such as through mergers and acquisitions, and will occur when such transactions are pursued. We have excluded these expenses because they can vary materially from period-to-period and transaction-to-transaction and expenses associated with these business development activities are not considered a key measure of the Company's operating performance. Acquisition-related intangible asset amortization, deferred compensation amortization and tax effects represent non-cash charges and benefits that result from the accounting for acquisitions. We have excluded these items because, in any period, they may not directly correlate to the underlying performance of the Company's business and these items can vary materially from period-to-period and transaction-to-transaction. In addition, we exclude these acquisition-related costs and benefits when evaluating our current operating performance.

Our non-GAAP financial measures may not reflect the full economic impact of the Company's activities. Further, these non-GAAP financial measures may be unique to the Company, as they may be different from non-GAAP financial measures used by other companies, including the Company's competitors. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies. Therefore, these non-GAAP financial measures are limited in their usefulness and investors are cautioned not to place undue reliance on our non-GAAP financial measures. In addition, investors are cautioned that these non-GAAP financial measures are not intended to be considered in isolation and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, "GAAP to Non-GAAP Reconciliations."

About Procera Networks Inc.
Procera Networks, Inc. (NASDAQ: PKT) delivers industry-leading network intelligence for millions of broadband connections worldwide. Procera's PacketLogic and NAVL solutions enable carrier, service provider, enterprise, and consumer networks to deliver a high quality of experience to their users through actionable intelligence and sophisticated policy enforcement. For more information, visit www.proceranetworks.com or follow Procera on Twitter at @ProceraNetworks.

   
   
Procera Networks, Inc.  
Condensed Consolidated Statements of Operations  
Unaudited  
(in thousands, except per share data)  
   
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2013     2012     2013     2012  
Sales:                                
  Product sales   $ 13,617     $ 11,863     $ 24,028     $ 21,692  
  Support sales     4,222       2,802       7,982       5,305  
    Total sales     17,839       14,665       32,010       26,997  
Cost of sales:                                
  Product cost of sales     6,283       5,171       12,370       8,619  
  Support cost of sales     831       247       1,546       469  
    Total cost of sales     7,114       5,418       13,916       9,088  
                                 
    Gross profit     10,725       9,247       18,094       17,909  
      60.1 %     63.1 %     56.5 %     66.3 %
Operating expenses:                                
  Research and development     4,186       1,791       8,587       3,482  
  Sales and marketing     7,349       4,474       13,970       8,480  
  General and administrative     3,352       2,078       6,989       4,437  
    Total operating expenses     14,887       8,343       29,546       16,399  
                                 
Income (loss) from operations     (4,162 )     904       (11,452 )     1,510  
                                 
Interest and other income (expense), net     20       (54 )     (30 )     (53 )
                                 
  Income (loss) before income taxes     (4,142 )     850       (11,482 )     1,457  
Income tax provision (benefit)     (860 )     84       (1,483 )     112  
  Net income (loss)   $ (3,282 )   $ 766     $ (9,999 )   $ 1,345  
                                 
Net income (loss) per share - basic   $ (0.16 )   $ 0.04     $ (0.50 )   $ 0.08  
Net income (loss) per share - diluted   $ (0.16 )   $ 0.04     $ (0.50 )   $ 0.08  
                                 
Shares used in computing net income (loss) per share:                                
  Basic     19,997       17,992       19,971       16,276  
  Diluted     19,997       18,510       19,971       16,797  
                                 
                                 
                                 
Procera Networks, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
   
    June 30,     December 31,  
    2013     2012  
ASSETS                
Current Assets:                
  Cash and cash equivalents   $ 44,042     $ 30,933  
  Short-term investments     66,766       100,762  
  Accounts receivable, net of allowance     17,166       16,603  
  Inventories, net     18,943       11,240  
  Prepaid expenses and other     5,216       2,012  
Total current assets     152,133       161,550  
                 
Property and equipment, net     5,574       4,474  
Intangible assets, net     7,134       -  
Goodwill     12,841       960  
Deferred tax asset     949       -  
Other non-current assets     52       54  
Total assets   $ 178,683     $ 167,038  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 7,658     $ 5,453  
  Deferred revenue     8,849       6,953  
  Accrued liabilities     5,456       4,949  
Total current liabilities     21,963       17,355  
                 
Non-current liabilities:                
  Deferred revenue     2,294       2,878  
  Deferred tax liability     1,944       -  
Total liabilities     26,201       20,233  
                 
Commitments and contingencies     -       -  
                 
Stockholders' equity:                
  Common stock     21       20  
  Additional paid-in capital     217,071       199,793  
  Accumulated other comprehensive loss     (1,679 )     (76 )
  Accumulated deficit     (62,931 )     (52,932 )
Total stockholders' equity     152,482       146,805  
                 
Total liabilities and stockholders' equity   $ 178,683     $ 167,038  
                 
                 
                 
Procera Networks, Inc.  
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information  
Unaudited  
(in thousands, except per share data)  
   
  Three Months Ended     Six Months Ended  
  June 2013     March 2013     June 2012     June 2013     June 2012  
Sales:                                      
  Product sales $ 13,617     $ 10,411     $ 11,863     $ 24,028     $ 21,692  
  Support sales   4,222       3,760       2,802       7,982       5,305  
    Total sales   17,839       14,171       14,665       32,010       26,997  
Cost of sales:                                      
  Product cost of sales, GAAP   6,283       6,087       5,171       12,370       8,619  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   (20 )     (19 )     (22 )     (39 )     (51 )
      Amortization of intangibles (2)   (284 )     (260 )     -       (544 )     -  
    Product cost of sales, non-GAAP   5,979       5,808       5,149       11,787       8,568  
  Support cost of sales, GAAP   831       715       247       1,546       469  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   (48 )     (93 )     (8 )     (141 )     (13 )
    Support cost of sales, non-GAAP   783       622       239       1,405       456  
    Total cost of sales, non-GAAP   6,762       6,430       5,388       13,192       9,024  
    Gross profit, non-GAAP   11,077       7,741       9,277       18,818       17,973  
    62.1 %     54.6 %     63.3 %     58.8 %     66.6 %
Operating expenses:                                      
  Research and development   4,186       4,401       1,791       8,587       3,482  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   (216 )     (500 )     (124 )     (716 )     (220 )
      Deferred compensation (3)   (752 )     (688 )     -       (1,440 )     -  
    Research and development, non-GAAP   3,218       3,213       1,667       6,431       3,262  
                                       
                                       
  Sales and marketing   7,349       6,621       4,474       13,970       8,480  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   (376 )     (587 )     (323 )     (963 )     (646 )
      Amortization of intangibles (2)   (124 )     (112 )     -       (236 )     -  
      Deferred compensation (3)   (716 )     (654 )     -       (1,370 )     -  
    Sales and marketing, non-GAAP   6,133       5,268       4,151       11,401       7,834  
                                       
  General and administrative   3,352       3,637       2,078       6,989       4,437  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   (487 )     (399 )     (184 )     (886 )     (442 )
      Business development costs (4)   (614 )     (1,002 )     -       (1,616 )     (646 )
    General and administrative, non-GAAP   2,251       2,236       1,894       4,487       3,349  
    Total operating expenses, non-GAAP   11,602       10,717       7,712       22,319       14,445  
                                       
Income (loss) from operations, non-GAAP   (525 )     (2,976 )     1,565       (3,501 )     3,528  
                                       
Interest and other income (expense), net   20       (50 )     (54 )     (30 )     (53 )
                                       
  Income (loss) before income taxes, non-GAAP   (505 )     (3,026 )     1,511       (3,531 )     3,475  
                                       
Income tax provision (benefit)   (860 )     (623 )     84       (1,483 )     112  
    Non-GAAP adjustments (5)   688       726       -       1,414       -  
  Income tax provision (benefit), non-GAAP   (172 )     103       84       (69 )     112  
  Net income (loss), nom-GAAP $ (333 )   $ (3,129 )   $ 1,427     $ (3,462 )   $ 3,363  
                                       
Net income (loss) per share - diluted, non-GAAP $ (0.02 )   $ (0.16 )   $ 0.08     $ (0.17 )   $ 0.20  
                                       
Shares used in computing diluted net income (loss) per share   19,997       19,931       18,510       19,971       16,797  
                                       
Reconciliation of Net Income (Loss):                                      
  U.S. GAAP as reported $ (3,282 )   $ (6,717 )   $ 766     $ (9,999 )   $ 1,345  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   1,147       1,598       661       2,745       1,372  
      Amortization of intangibles (2)   408       372       -       780       -  
      Deferred compensation (3)   1,468       1,342       -       2,810       -  
      Business development expenses (4)   614       1,002       -       1,616       646  
      Income tax adjustment (5)   (688 )     (726 )     -       (1,414 )     -  
  As Adjusted $ (333 )   $ (3,129 )   $ 1,427     $ (3,462 )   $ 3,363  
            -                          
Reconciliation of Diluted Net Income (Loss) Per Share:                                      
  U.S. GAAP as reported $ (0.16 )   $ (0.34 )   $ 0.04     $ (0.50 )   $ 0.08  
    Non-GAAP adjustments:                                      
      Stock-based compensation (1)   0.06       0.08       0.04       0.14       0.08  
      Amortization of intangibles (2)   0.02       0.02       -       0.04       -  
      Deferred compensation (3)   0.07       0.07       -       0.14       -  
      Business development expenses (4)   0.03       0.05       -       0.08       0.04  
      Income tax adjustment (5)   (0.03 )     (0.04 )     -       (0.07 )     -  
  As Adjusted $ (0.02 )   $ (0.16 )   $ 0.08     $ (0.17 )   $ 0.20  
                                       
Shares used in computing diluted net income (loss) per share   19,997       19,931       18,510       19,971       16,797  
                                         
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of ASC 718.
(2) Amortization expense associated with intangible assets acquired in the Vineyard Networks acquisition.
(3) Deferred compensation includes amortization of amounts to be paid under retention agreements with Vineyard's three founders; these are payable after one year of continuous employment with the Company.
(4) Business development expenses include the cost of outside professional services for negotiating and performing legal, accounting and tax due diligence for potential mergers, acquisitions and other significant partnership arrangements.
(5) Income tax benefit associated with the following Vineyard acquisition related items:
  - reversal of Vineyard's pre-existing income tax valuation allowance upon acquisition; and
  - amortization of acquired intangible assets and book/tax differences on deferred revenue.
Contact:
Investor Relations Contact
Nicole Noutsios
NMN Advisors (for Procera Networks)
procera@nmnadvisors.com
1+510-315-1003

Media Contact
Fran Lowe
Engage PR (for Procera Networks)
flowe@engagepr.com
1+510-748-8200 x225
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