SOURCE: Procera Networks

Procera Networks

November 05, 2009 16:05 ET

Procera Networks Announces Third Quarter 2009 Results

LOS GATOS, CA--(Marketwire - November 5, 2009) - Procera Networks Inc. (NYSE Amex: PKT), a developer of Evolved Deep Packet Inspection (DPI) solutions providing traffic awareness, control and protection for complex networks, today reported financial results for its third quarter ended September 30, 2009.

Q3'09 Key Highlights:

--  Record revenue of $4.6 million; increased 70% year-over-year and 42%
    sequentially
--  Sixth consecutive quarter of year-over-year revenue growth
--  Announced Tier 1 service provider follow-on order of $4.5 million
--  Continued focus on Tier 1 service providers contributes to strong
    bookings of $6.3 million
--  Reduced operating expenses 30% year-over-year
    

"During the third quarter we achieved record revenue and strong bookings," said James Brear, president and CEO of Procera. "We also secured a $4.5 million Tier-1 follow-on order for our PacketLogic systems, which validates our technology leadership and establishes Procera's credibility as a viable Tier 1 supplier."

Total revenue for the third quarter of 2009 was $4.6 million, an increase of 70% from $2.7 million in the third quarter of 2008. The GAAP net loss for the third quarter of 2009 was $1.6 million, or a net loss of $0.02 per diluted share. This compares to a GAAP net loss of $3.8 million, or a net loss of $0.05 per diluted share, in the third quarter of 2008.

Non-GAAP net loss for the third quarter of 2009 was $870,000, as compared to non-GAAP net loss of $2.6 million in the third quarter of 2008. For an explanation of Non-GAAP financial measures used in this release, and a reconciliation to comparable GAAP measures, please refer to Use of Non-GAAP Financial Information below.

Conference Call Information

Procera Networks will host a conference call at 4:30 p.m. eastern time today to discuss its financial results for the third quarter ended September 30, 2009. Interested parties can access the live call by dialing 877-718-5099 or 719-325-4823 and entering passcode 4157040. An archive of the conference call will be available on the Quarterly Results and Events section of the Procera Networks' Investor Relations Web site at www.proceranetworks.com/investors, on or before November 6, 2009.

Forward Looking Statements

Safe Harbor Statement: this press release contains forward-looking statements, including statements relating to the expected demand for Procera Networks' products and services and the recently announced follow-on order from a Tier 1 service provider. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements, including risks related to our ability to raise capital; the acceptance and adoption of our products; our ability to service and upgrade our products; lengthy sales cycles and lab and field trial delays by service providers; our dependence on a limited product line; our dependence on key employees; our ability to compete in our industry with companies that are significantly larger and have greater resources; our ability to protect our intellectual property rights in a global market; our ability to manufacture product quickly enough to meet potential demand; and other risks and uncertainties described more fully in our 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 set forth in our Forms 10-Qs filed in 2009 and our Form 10-K filed for the year ended December 31, 2008. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Use of Non-GAAP Financial Information

Procera's management believes that these non-GAAP financial measures, when taken together with the corresponding consolidated GAAP measures and related segment information, provide incremental insight into the underlying factors and trends affecting both the Company's performance and its cash generating potential. Management believes these non-GAAP measures increase the transparency of the Company's current results and enable investors to more fully understand trends in its current and future performance.

Thus, 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 that we believe are helpful in understanding our past financial performance and future results. For reconciliations 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." Management regularly uses these supplemental non-GAAP financial measures internally to understand and manage our business and forecast future periods. Our non-GAAP financial measures include adjustments based on the following items, as well as the related income tax benefits, if any:

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from our non-GAAP net income. Amortization of intangible assets is a non-cash expense, and it is not part of our core operations that requires cash. Investors should note that our intangible assets were essential for generating revenues during the periods presented and will contribute to future period revenues as well.

Stock-based compensation expenses: We have excluded the effect of stock-based compensation from our non-GAAP gross profit, operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees and consultants, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.

Non-cash interest expense: We have excluded the effect of a non-cash charge to interest expense for the amortization of debt discounts related to convertible promissory notes that were issued and converted within the second quarter of 2009.

These non-GAAP financial measures are not consistent with GAAP because they do not fully reflect non-cash expenses. The above-mentioned non-GAAP measures are generated by adjusting the related GAAP measures solely to reverse the effect of the above mentioned non-cash expenses. The Company uses these financial measures to provide additional insight into current operating and business trends not readily apparent from the GAAP results.

Management believes users of Procera's financial statements will benefit from greater transparency in referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

--  these non-GAAP financial measures are limited in their usefulness and
    should be considered only as a supplement to the Company's GAAP financial
    measures;
--  these non-GAAP financial measures should be read in conjunction with
    our consolidated financial statements prepared in accordance with GAAP
--  these non-GAAP financial measures should not be considered in
    isolation from, or as a substitute for, the Company's GAAP financial
    measures;
--  these non-GAAP financial measures should not be considered to be
    superior to the Company's GAAP financial measures;
--  these non-GAAP financial measures were not prepared in accordance with
    GAAP and investors should not assume that the non-GAAP financial measures
    presented in this earnings release were prepared under a comprehensive set
    of rules or principles; and
--  management intends to continue to track and present these non-GAAP
    financial measures for future periods.
    

Further, these non-GAAP financial measures may be unique to Procera, as they may be different from non-GAAP financial measures used by other companies. 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.

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure or measures appears at the end of this press release.

About Procera Networks Inc.

Procera Networks Inc. delivers Evolved DPI solutions that give service providers awareness, control and protection of their applications and networks. Its core product suite, the PacketLogic line of platforms, leverages the company's advanced identification engine, DRDL™ (Datastream Recognition Definition Language), to provide accurate identification of network traffic in real-time. PacketLogic is deployed at more than 600 broadband service providers, telcos, governments and higher education campuses worldwide. Founded in 2002, Procera (NYSE Amex: PKT) is based in Silicon Valley and has offices in Europe and Australia.. More information is available at www.proceranetworks.com.

                          Procera Networks, Inc.
              Condensed Consolidated Statements of Operations
                                Unaudited


                       Three Months Ended           Nine Months Ended
                         September 30,                September 30,
                   --------------------------  ---------------------------
                       2009          2008          2009          2008
                   ------------  ------------  ------------  -------------
Sales
  Product sales    $  3,787,205  $  2,209,605  $  8,509,093  $   5,748,372
  Support sales         796,279       479,568     2,255,444      1,271,874
                   ------------  ------------  ------------  -------------
    Total sales       4,583,484     2,689,173    10,764,537      7,020,246
Cost of sales
  Product cost of
   sales              2,969,853     1,788,622     6,909,181      4,209,445
  Support cost of
   sales                125,699       125,654       330,188        423,797
                   ------------  ------------  ------------  -------------
    Total cost of
     sales            3,095,552     1,914,276     7,239,369      4,633,242
                   ------------  ------------  ------------  -------------

    Gross profit      1,487,932       774,897     3,525,168      2,387,004
                   ------------  ------------  ------------  -------------
                             32%           29%           33%            34%
Operating
 expenses:
  Research and
   development          583,738       809,201     1,903,187      2,497,734
  Sales and
   marketing          1,622,291     2,094,101     4,961,082      6,435,501
  General and
   administrative     1,088,302     1,896,837     3,807,342      5,392,988
                   ------------  ------------  ------------  -------------
    Total
     operating
     expenses         3,294,331     4,800,139    10,671,611     14,326,223
                   ------------  ------------  ------------  -------------

Loss from
 operations          (1,806,399)   (4,025,242)   (7,146,443)   (11,939,219)
                   ------------  ------------  ------------  -------------

Other income
 (expense)
  Interest and
   other income          11,234        27,371        36,503         53,254
  Interest and
   other expense        (75,752)      (14,569)   (1,843,205)       (49,373)
                   ------------  ------------  ------------  -------------
    Total other
     income
     (expense)          (64,518)       12,802    (1,806,702)         3,881

  Loss before
   income taxes      (1,870,917)   (4,012,440)   (8,953,145)   (11,935,338)
Income tax benefit      275,870       259,904       691,450        782,295
                   ------------  ------------  ------------  -------------
  Net loss         $ (1,595,047) $ (3,752,536) $ (8,261,695) $ (11,153,043)
                   ============  ============  ============  =============

Net loss per share
 - basic and
 diluted           $      (0.02) $      (0.05) $      (0.09) $       (0.14)
                   ============  ============  ============  =============

Shares used in
 computing net
 loss per
 share-basic and
 diluted             94,082,724    79,018,207    88,516,837     77,424,517




                          Procera Networks, Inc.
                  Condensed Consolidated Balance Sheets


                                               September 30,  December 31,
                                                   2009           2008
                                               -------------  ------------
ASSETS                                           Unaudited
Current Assets:
  Cash and cash equivalents                    $   2,389,449  $  1,721,225
  Accounts receivable, net of allowance            5,677,625     5,454,745
  Inventories, net                                 2,104,103     3,445,802
  Prepaid expenses and other                         546,521       824,340
                                               -------------  ------------
Total current assets                              10,717,698    11,446,112

Property and equipment, net                          732,419     2,573,045
Purchased intangible assets, net                           -       964,405
Goodwill                                             960,209       960,209
Other non-current assets                              47,223        47,294
                                               -------------  ------------
Total assets                                   $  12,457,549  $ 15,991,065
                                               =============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $   1,302,241  $  2,457,430
  Deferred revenue                                 1,923,597     1,313,092
  Accrued liabilities                              1,525,608     1,841,442
  Notes payable                                      500,000       550,000
  Capital leases payable                                   -        11,543
                                               -------------  ------------
Total current liabilities                          5,251,447     6,173,507

Non-current liabilities
  Deferred rent                                       38,540        24,234
  Deferred tax liability                                   -       695,239
  Capital leases payable                                   -        39,584
                                               -------------  ------------
Total liabilities                                  5,289,987     6,932,564

Commitments and contingencies                              -             -

Stockholders' equity:
  Common stock                                        94,083        84,498
  Additional paid-in capital                      67,356,581    61,142,430
  Accumulated other comprehensive loss              (281,086)     (428,107)
  Accumulated deficit                            (60,002,016)  (51,740,320)
                                               -------------  ------------
Total stockholders' equity                         7,167,562     9,058,501
                                               -------------  ------------

Total liabilities and stockholders' equity     $  12,457,549  $ 15,991,065
                                               =============  ============




                          Procera Networks, Inc.
  GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information
                                Unaudited


                    Three Months Ended               Nine Months Ended
          -------------------------------------  -------------------------
           September                 September    September     September
              30,        June 30,       30,           30,          30,
             2009          2009        2008          2009         2008
          -----------  -----------  -----------  -----------  ------------

Sales -
 U.S. GAAP
 as
 reported   4,583,484    3,233,720    2,689,173   10,764,537     7,020,246

Reconciliation
 of Gross
 Profit:
 U.S. GAAP
  as
  reported  1,487,932      877,822      774,897    3,525,168     2,387,004
 As a
  percentage
  of
  sales            32%          27%          29%          33%           34%
 Adjustment:
  Amortization
   on
   intangibles
   (1)        254,333      381,500      381,500    1,017,333     1,144,500
  Stock-based
   compensation
   (2)         15,943       16,395       18,193       50,397        31,434
          -----------  -----------  -----------  -----------  ------------
 As
  Adjusted  1,758,208    1,275,717    1,174,590    4,592,898     3,562,938
 As a
  percentage
  of
  sales            38%          39%          44%          43%           51%

Reconciliation
 of
 Operating
 Expense:
 U.S. GAAP
  as
  reported  3,294,331    3,726,832    4,800,139   10,671,611    14,326,223
 Adjustment:
  Amortization
   on
   intangibles
   (1)        371,074      545,083      545,083    1,461,240     1,635,249
  Stock-based
   compensation
   (2)        259,901      271,285      447,317      835,555     1,254,763
          -----------  -----------  -----------  -----------  ------------
 As
  Adjusted  2,663,356    2,910,464    3,807,739    8,374,816    11,436,211

Reconciliation
 of
 Net Loss:
 U.S. GAAP
  as
  reported (1,595,047)  (4,332,595)  (3,752,536)  (8,261,695)  (11,153,043)
 Adjustment:
  Amortization
   on
   intangibles
   (1)        625,407      926,583      926,583    2,478,573     2,779,749
  Stock-based
   compensation
   (2)        275,844      287,680      465,510      885,952     1,286,197
  Interest
   related
   to
   beneficial
   conversion
   feature
   (3)              -    1,644,756            -    1,644,756             -
  Income
   tax
   adjustment
   (4)       (176,687)    (259,904)    (259,904)    (696,495)     (779,712)
          -----------  -----------  -----------  -----------  ------------
 As
  Adjusted   (870,483)  (1,733,480)  (2,620,346)  (3,948,909)   (7,866,809)
          ===========  ===========  ===========  ===========  ============

(1) The intangible assets recorded at fair value as a result of our
acquisitions are amortized over the estimated useful life of the respective
asset.
(2) Stock-based compensation expense is calculated in accordance with the
fair value recognition provisions of Statements of Financial Accounting
Standards No. 123 (R).
(3) Interest expense related to beneficial conversion feature of
convertible promissory notes.
(4) Income tax benefit from the amortization of intangible assets.

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