SOURCE: Procera Networks

Procera Networks

May 10, 2011 16:05 ET

Procera Networks Announces First Quarter 2011 Results

First Quarter Revenue of $6.9 Million, up 110% Year-Over-Year

FREMONT, CA--(Marketwire - May 10, 2011) - Procera Networks, Inc. (NYSE Amex: PKT), the intelligent policy enforcement company, today reported financial results for its first quarter ended March 31, 2011.

First Quarter Highlights

--  Revenue of $6.9 million, up 110% from Q110
--  Bookings of $9.6 million, up 174% from Q110
--  Signed and received initial orders from two new European Tier-1 service
    providers
--  Received $2 million follow-on order from North American Tier-1 Cable
    MSO
--  Received follow-on orders from six of the Company's 13 Tier-1 service
    provider customers
--  Sales to two Tier-1 service provider customers were greater than 10% of
    revenue, a first for these customers
--  40 higher education customer wins
--  Gross margin improved to 61%, compared to 58% in Q410 and 52% in Q110
--  Non-GAAP net income of $136,000, compared to a non-GAAP net loss of
    $1.2 million in Q110
--  Cash flow from operations was $2.4 million
--  Cash and cash equivalents were $9.4 million, compared to $7.9 million
    at December 31, 2010
--  14 direct Tier-1 trials ongoing or planned over the next 90 days;
    additional trials through partners

Financial Guidance

Procera is reiterating its annual revenue guidance for 2011 of $30 million, representing growth of 50% year-over-year.

James Brear, president and CEO of Procera Networks, commented, "We are executing well on our growth plan and our strong revenue and bookings in the first quarter reflect our success in generating follow-on orders from our existing Tier-1 customers and converting trials into new customer wins. During the quarter, we received follow-on orders from six of our existing 13 Tier-1 service provider customers; three of these orders from mobile operators. In addition, we announced two new Tier-1 European service provider customers in April, winning initial orders from a leading cable MSO and a Tier-1 fixed/mobile operator.

"Adding to our strategic partnerships, we signed a new alliance during the first quarter with F5 Networks that provides technology synergies between the two companies. We are gaining increasing traction within the rapidly growing mobility market, a key targeted vertical, and are benefiting from the accelerating demand for mobile data that is impacting the ability of service providers to effectively manage their bandwidth capacity and maintain quality of service, driving the need for Intelligent Policy Enforcement. As we continue to expand our market reach and opportunities, carriers around the world are increasingly recognizing the value in our products as a revenue generating technology that can help them differentiate their service and provide a better experience," Mr. Brear concluded.

First Quarter 2011 Financial Results

Revenue for the first quarter of 2011 was $6.9 million, up 110% from revenue of $3.3 million in the first quarter of 2010.

GAAP net loss for the first quarter was $230,000, or a loss of $0.02 per share, compared to a net loss of $1.5 million, or a loss of $0.15 per share, in the first quarter of 2010.

Non-GAAP net income for the first quarter of 2011 was $136,000, compared to a non-GAAP net loss of $1.2 million in the first quarter of 2010. For an explanation of non-GAAP financial measures used in this release, and reconciliation to comparable GAAP measures, please refer to the Use of Non-GAAP Financial Information below.

Conference Call Information

Procera Networks, Inc. will host a conference call at 4:30 p.m. Eastern Time today to discuss its financial results for the first quarter ended March 31, 2011. Interested parties can access the live call by dialing 877-941-8418 or 480-629-9809 (International) and request the "Procera" call. A replay of the call will be available approximately one hour following the end of the call through 11:59 p.m. ET on Tuesday, May 17, 2011, by dialing 800-406-7325 and entering the replay code of 4436587#. To access the replay from international locations, dial 303-590-3030 using the same passcode. 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.

Safe Harbor Statement

This press release contains forward-looking statements, including statements relating to expectations for revenue growth in 2011, our ability to win new business, potential benefits from partnerships and alliances, including with GENBAND and F5 Networks, obtaining follow-on orders from new and existing customers, and the expected demand for Procera Networks' products and services. 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 Form 10-K filed for the year ended December 31, 2010. 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 certain 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 Procera'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 financial performance. 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 for 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.

The 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 Intelligent Policy Enforcement (IPE) solutions, leveraging advanced Deep Packet Inspection (DPI) technology. This enables carriers, services providers and higher education institutions to improve the quality and lifetime of their networks, better monetize their infrastructure investments, control hazards, and create attractive services for their users by making qualified business decisions based on granular user and traffic intelligence. Procera's core product suite, the PacketLogic line of platforms, is an engine that drives the PCC (Policy and Charging Control) ecosystem, by enforcing advanced network and service policies. PacketLogic is deployed at more than 600 customers who value the unparalleled accuracy and high-end performance of the PacketLogic solution. Founded in 2002, Procera (NYSE Amex: PKT) is based in Silicon Valley and has offices around the globe. More information is available at www.proceranetworks.com.

Procera Networks, Inc.
Condensed Consolidated Statements of Operations
Unaudited

                                                   Three Months Ended
                                                        March 31,
                                              ----------------------------
                                                  2011           2010
                                              -------------  -------------
Sales:
   Product sales                              $   5,615,542  $   2,382,964
   Support sales                                  1,307,351        910,646
                                              -------------  -------------
           Total sales                            6,922,893      3,293,610

Cost of sales:
   Product cost of sales                          2,583,452      1,451,935
   Support cost of sales                            136,036        127,485
                                              -------------  -------------
           Total cost of sales                    2,719,488      1,579,420
                                              -------------  -------------

           Gross profit                           4,203,405      1,714,190
                                              -------------  -------------
                                                       60.7%          52.0%
Operating expenses:
   Research and development                       1,037,982        620,495
   Sales and marketing                            2,064,485      1,457,497
   General and administrative                     1,276,185      1,107,374
                                              -------------  -------------
           Total operating expenses               4,378,652      3,185,366
                                              -------------  -------------

Loss from operations                               (175,247)    (1,471,176)
                                              -------------  -------------

Interest and other income (expense), net            (30,222)       (42,972)
                                              -------------  -------------

   Loss before income taxes                        (205,469)    (1,514,148)
Income tax provision                                 24,200          1,256
                                              -------------  -------------
   Net loss                                   $    (229,669) $  (1,515,404)
                                              =============  =============

Net loss per share - basic and diluted        $       (0.02) $       (0.15)
                                              =============  =============

Shares used in computing net loss per share*
 - basic and diluted                             11,276,927      9,948,272

* Shares used in per share calculations reflect a 1-for-10 reverse stock
  split effected by the Company on February 4, 2011.






Procera Networks, Inc.
Condensed Consolidated Balance Sheets

                                                March 31,    December 31,
                                                  2011           2010
                                              -------------  -------------
ASSETS
Current Assets:
   Cash and cash equivalents                  $   9,366,105  $   7,875,798
   Accounts receivable, net of allowance          9,037,777     11,407,220
   Inventories, net                               2,678,339      2,549,695
   Prepaid expenses and other                       480,618        831,737
                                              -------------  -------------
Total current assets                             21,562,839     22,664,450

Property and equipment, net                         884,527        873,173
Goodwill                                            960,209        960,209
Other non-current assets                             27,192         19,150
                                              -------------  -------------
Total assets                                  $  23,434,767  $  24,516,982
                                              =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Line of credit                             $     716,656  $   1,718,732
   Accounts payable                               1,753,129      1,943,799
   Deferred revenue                               3,764,538      3,732,756
   Accrued liabilities                            2,578,707      2,662,564
                                              -------------  -------------
Total current liabilities                         8,813,030     10,057,851

Non-current liabilities:
   Deferred revenue                                 634,770        704,735
                                              -------------  -------------
Total liabilities                                 9,447,800     10,762,586

Commitments and contingencies                             -              -

Stockholders' equity:
   Common stock                                      11,364         11,315
   Additional paid-in capital                    76,467,370     76,093,272
   Accumulated other comprehensive loss            (243,790)      (331,883)
   Accumulated deficit                          (62,247,977)   (62,018,308)
                                              -------------  -------------
Total stockholders' equity                       13,986,967     13,754,396
                                              -------------  -------------

Total liabilities and stockholders' equity    $  23,434,767  $  24,516,982
                                              =============  =============





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

                                             Three Months Ended
                                  ----------------------------------------
                                    March 31,   December 31,    March 31,
                                      2011          2010          2010
                                  ------------  ------------  ------------

Sales - U.S. GAAP as reported        6,922,893     7,518,088     3,293,610

Reconciliation of Gross Profit:
   U.S. GAAP as reported             4,203,405     4,364,257     1,714,190
   As a percentage of sales               60.7%         58.1%         52.0%
   Adjustment:
     Stock-based compensation (1)       24,759        24,671        21,727
                                  ------------  ------------  ------------
   As Adjusted                       4,228,164     4,388,928     1,735,917
   As a percentage of sales               61.1%         58.4%         52.7%

Reconciliation of Operating
 Expense:
   U.S. GAAP as reported             4,378,652     4,143,665     3,185,366
   Adjustment:
     Stock-based compensation (1)      340,660       393,001       282,875
                                  ------------  ------------  ------------
   As Adjusted                       4,037,992     3,750,664     2,902,491

Reconciliation of Net Income
 (Loss):
   U.S. GAAP as reported              (229,669)      182,326    (1,515,404)
   Adjustment:
     Stock-based compensation (1)      365,419       417,672       304,602
                                  ------------  ------------  ------------
   As Adjusted                         135,750       599,998    (1,210,802)
                                  ============  ============  ============

(1) Stock-based compensation expense is calculated in accordance with the
    fair value recognition provisions of Statements of Financial Accounting
    Standards No. 123 (R).

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