SOURCE: Procera Networks

Procera Networks

February 27, 2014 16:05 ET

Procera Networks Announces Fourth Quarter and Fiscal 2013 Financial Results

FREMONT, CA--(Marketwired - Feb 27, 2014) - Procera Networks, Inc. (NASDAQ: PKT)

  • Reports quarterly revenue of $21.3 million, up 29% year-over-year
  • Record fourth quarter bookings of $22.4 million
  • Added 68 new service provider customers in fiscal 2013
  • Expanded the product portfolio, including enhancing capabilities with network and subscriber analytics and visualization

Procera Networks, Inc. (NASDAQ: PKT), the global Internet intelligence company, today reported financial results for its fourth quarter and fiscal year ended on December 31, 2013.

Revenue for the fourth quarter of 2013 was $21.3 million, up 29% from revenue of $16.6 million in the fourth quarter of 2012. GAAP net loss for the fourth quarter of 2013 was $3.3 million, or $0.16 per diluted share, compared to net income of $1.2 million, or $0.06 per diluted share, for the fourth quarter of 2012. Non-GAAP net income for the fourth quarter of 2013 was $7 thousand, or $0.00 per diluted share, compared to non-GAAP net income of $2.4 million, or $0.12 per diluted share, for the fourth quarter of 2012.

Revenue for fiscal 2013 was $74.7 million, an increase of 25% over revenue of $59.6 million reported for 2012. GAAP net loss for 2013 was $16.3 million, or $0.81 per diluted share, compared with net income of $5.3 million, or $0.29 per diluted share, for 2012. Non-GAAP net loss for 2013 was $3.6 million, or $0.18 per diluted share, compared with non-GAAP net income of $9.4 million, or $0.51 per diluted share, in fiscal 2012. A description of the non-GAAP financial measures and a reconciliation to comparable GAAP measures is provided in the accompanying table entitled "Use of Non-GAAP Financial Information" below.

"While we are disappointed we missed our annual revenue guidance, 2013 was a very important year for Procera Networks. With the investments we made in 2013, the company built a foundation for long-term growth and leadership in the market," stated James Brear, President and CEO of Procera Networks. "We made recent announcements that reflect Procera's product and technology investments that enhance the customer experience, as well as announced several partnerships that expand our market reach."

Fourth Quarter 2013 Business and Financial Highlights

  • Reported revenue of $21.3 million, up 29% year-over-year.
  • Bookings were a fourth quarter record of $22.4 million.
  • Added 27 new service provider customers.
  • Selected by a Tier 1 Mobile Operator in EMEA and by two new Tier 1 fixed line operators in the LATAM region.
  • Launched Internet Intelligence Insight Solutions, a web-based visualization platform that leverages the rich analytics and intelligence data provided by Procera's solutions.
  • Announced "Service Plan Assurance," the industry's first service plan quality and transparency solution.
  • Selected by NTT DATA for NAVL-based Network Visibility.
  • Ranked among the top 10 fastest growing networking companies and recognized, for the fourth year in a row, by Deloitte's 2013 Technology Fast 500™.

Guidance

Procera is providing guidance of annual revenue growth of 15% for 2014. We plan to increase our investment in product solutions and offset the cost of these investments with cost reductions in other parts of our business. We expect quarterly non-GAAP operating expenses in 2014 to be relatively flat with the amount of non-GAAP operating expenses we reported for the fourth quarter of 2013. We expect a return to non-GAAP profitability in the second half of 2014.

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 future results, performance or achievements to be materially different from prior results.

Conference Call Information

Procera Networks, Inc. is hosting a conference call for analysts and investors to discuss its fourth quarter and full 2013 results, and its outlook for 2014, at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, February 27, 2014. 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: (855) 859-2056 (domestic), (404) 537-3406 (international) using ID# 52897543. 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 2014 revenue growth, operating expenses, cost reductions and product solution investments, a return to non-GAAP profitability in the second half of 2014, long-term growth and the market opportunity, 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 ability to obtain any follow-on orders from major customers; its customers canceling orders; its dependence on a limited product line and key customers; 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 September 30, 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, restricted stock and restricted stock units 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 Internet Intelligence solutions to service providers and network equipment manufacturers for analytics and enforcement of broadband traffic worldwide. Procera's solutions provide actionable intelligence and policy enforcement to ensure a high quality experience for any Internet and network connected devices. 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     Twelve Months Ended  
    December 31,     December 31,  
    2013     2012     2013     2012  
Sales:                                
  Product sales   $ 16,191     $ 13,083     $ 56,520     $ 47,723  
  Support sales     5,139       3,486       18,153       11,904  
    Total sales     21,330       16,569       74,673       59,627  
Cost of sales:                                
  Product cost of sales     8,011       5,048       30,461       17,720  
  Support cost of sales     957       794       3,399       1,749  
    Total cost of sales     8,968       5,842       33,860       19,469  
                                   
    Gross profit     12,362       10,727       40,813       40,158  
      58.0 %     64.7 %     54.7 %     67.3 %
Operating expenses:                                
  Research and development     5,016       2,059       17,548       7,472  
  Sales and marketing     7,959       5,105       29,251       18,158  
  General and administrative     2,537       2,399       12,036       9,223  
    Total operating expenses     15,512       9,563       58,835       34,853  
                                 
Income (loss) from operations     (3,150 )     1,164       (18,022 )     5,305  
                                 
Interest and other income (expense), net     359       41       561       149  
                                 
  Income (loss) before income taxes     (2,791 )     1,205       (17,461 )     5,454  
Income tax provision (benefit)     511       (18 )     (1,177 )     123  
  Net income (loss)   $ (3,302 )   $ 1,223     $ (16,284 )   $ 5,331  
                                 
Net income (loss) per share - basic   $ (0.16 )   $ 0.06     $ (0.81 )   $ 0.30  
Net income (loss) per share - diluted   $ (0.16 )   $ 0.06     $ (0.81 )   $ 0.29  
                                 
Shares used in computing net income (loss) per share:                                
  Basic     20,144       19,410       20,091       17,842  
  Diluted     20,144       19,830       20,091       18,337  
                                 
                                 
                                 
Procera Networks, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
    December 31,     December 31,  
    2013     2012  
ASSETS                
Current Assets:                
  Cash and cash equivalents   $ 90,774     $ 30,933  
  Short-term investments     15,789       100,762  
  Accounts receivable, net of allowance     25,008       16,603  
  Inventories, net     18,836       11,240  
  Prepaid expenses and other     2,128       2,012  
Total current assets     152,535       161,550  
                 
Property and equipment, net     7,121       4,474  
Intangible assets, net     6,270       -  
Goodwill     12,326       960  
Deferred tax asset     1,101       -  
Other non-current assets     83       54  
Total assets   $ 179,436     $ 167,038  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 7,305     $ 5,453  
  Deferred revenue     11,633       6,953  
  Accrued liabilities     6,721       4,949  
Total current liabilities     25,659       17,355  
                 
Non-current liabilities:                
  Deferred revenue     3,273       2,878  
  Deferred tax liability     1,690       -  
  Other long-term liabilities     143       -  
Total liabilities     30,765       20,233  
                 
Commitments and contingencies     -       -  
                 
Stockholders' equity:                
  Common stock     21       20  
  Additional paid-in capital     219,763       199,793  
  Accumulated other comprehensive loss     (1,897 )     (76 )
  Accumulated deficit     (69,216 )     (52,932 )
Total stockholders' equity     148,671       146,805  
                 
Total liabilities and stockholders' equity   $ 179,436     $ 167,038  
                 
                 
                 
Procera Networks, Inc.  
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information  
Unaudited  
(in thousands, except per share data)  
    Three Months Ended     Twelve Months Ended  
    December 2013     September 2013     December 2012     December 2013     December 2012  
Sales:                                        
  Product sales   $ 16,191     $ 16,301     $ 13,083     $ 56,520     $ 47,723  
  Support sales     5,139       5,032       3,486       18,153       11,904  
    Total sales     21,330       21,333       16,569       74,673       59,627  
Cost of sales:                                        
  Product cost of sales, GAAP     8,011       10,080       5,048       30,461       17,720  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     (26 )     (19 )     (14 )     (84 )     (76 )
      Amortization of intangibles (2)     (275 )     (275 )     -       (1,094 )     -  
    Product cost of sales, non-GAAP     7,710       9,786       5,034       29,283       17,644  
  Support cost of sales, GAAP     957       896       794       3,399       1,749  
    Non-GAAP adjustments:                                        
    Stock-based compensation (1)     (79 )     (82 )     (38 )     (302 )     (74 )
      Support cost of sales, non-GAAP     878       814       756       3,097       1,675  
    Total cost of sales, non-GAAP     8,588       10,600       5,790       32,380       19,319  
    Gross profit, non-GAAP     12,742       10,733       10,779       42,293       40,308  
      59.7 %     50.3 %     65.1 %     56.6 %     67.6 %
Operating expenses:                                        
  Research and development     5,016       3,945       2,059       17,548       7,472  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     (292 )     (218 )     (25 )     (1,226 )     (321 )
      Deferred compensation (3)     (753 )     (753 )     -       (2,946 )     -  
    Research and development, non-GAAP     3,971       2,974       2,034       13,376       7,151  
                                           
  Sales and marketing     7,959       7,322       5,105       29,251       18,158  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     (334 )     (385 )     (233 )     (1,682 )     (1,175 )
      Amortization of intangibles (2)     (119 )     (117 )     -       (472 )     -  
      Deferred compensation (3)     (777 )     (716 )     -       (2,863 )     -  
    Sales and marketing, non-GAAP     6,729       6,104       4,872       24,234       16,983  
                                           
  General and administrative     2,537       2,510       2,399       12,036       9,223  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     (512 )     (365 )     (281 )     (1,763 )     (1,138 )
      Business development costs (4)     -       -       (590 )     (1,616 )     (1,236 )
    General and administrative, non-GAAP     2,025       2,145       1,528       8,657       6,849  
    Total operating expenses, non-GAAP     12,725       11,223       8,434       46,267       30,983  
                                           
Income (loss) from operations, non-GAAP     17       (490 )     2,345       (3,974 )     9,325  
                                         
Interest and other income (expense), net     359       232       41       561       149  
                                         
  Income (loss) before income taxes, non-GAAP     376       (258 )     2,386       (3,413 )     9,474  
                                         
Income tax provision (benefit)     511       (205 )     (18 )     (1,177 )     123  
    Non-GAAP adjustments (5)     (142 )     136       -       1,408       -  
  Income tax provision (benefit), non-GAAP     369       (69 )     (18 )     231       123  
  Net income (loss), non-GAAP   $ 7     $ (189 )   $ 2,404     $ (3,644 )   $ 9,351  
                                         
Net income (loss) per share - diluted, non-GAAP   $ 0.00     $ (0.01 )   $ 0.12     $ (0.18 )   $ 0.51  
                                         
Shares used in computing diluted net income (loss) per share     20,144       20,031       19,830       20,091       18,337  
                                         
Reconciliation of Net Income (Loss):                                        
  U.S. GAAP as reported   $ (3,302 )   $ (2,983 )   $ 1,223     $ (16,284 )   $ 5,331  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     1,243       1,069       591       5,057       2,784  
      Amortization of intangibles (2)     394       392       -       1,566       -  
      Deferred compensation (3)     1,530       1,469       -       5,809       -  
      Business development expenses (4)     -       -       590       1,616       1,236  
      Income tax adjustment (5)     142       (136 )     -       (1,408 )     -  
  As Adjusted   $ 7     $ (189 )   $ 2,404     $ (3,644 )   $ 9,351  
              -                          
Reconciliation of Diluted Net Income (Loss) Per Share:                                        
  U.S. GAAP as reported   $ (0.16 )   $ (0.15 )   $ 0.06     $ (0.81 )   $ 0.29  
    Non-GAAP adjustments:                                        
      Stock-based compensation (1)     0.06       0.05       0.03       0.25       0.15  
      Amortization of intangibles (2)     0.02       0.02       -       0.08       -  
      Deferred compensation (3)     0.08       0.07       -       0.29       -  
      Business development expenses (4)     -       -       0.03       0.08       0.07  
      Income tax adjustment (5)     0.01       (0.01 )     -       (0.07 )     -  
  As Adjusted   $ 0.00     $ (0.01 )   $ 0.12     $ (0.18 )   $ 0.51  
                                         
Shares used in computing diluted net income (loss) per share     20,144       20,031       19,830       20,091       18,337  
     
(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.

 

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