SOURCE: Procera Networks

Procera Networks

August 12, 2009 16:00 ET

Procera Networks Announces Second Quarter 2009 Results

LOS GATOS, CA--(Marketwire - August 12, 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, announced its earnings for its second quarter ended June 30, 2009 (Q2'09).

Q2'09 Key Highlights:

--  Focus on Tier 1 service providers achieves record bookings of $7.1
    million
--  Announced initial $5.4M purchase order from a major Tier 1 Service
    Provider
--  Fifth consecutive quarter of year-over-year revenue growth
--  Revenue of $3.2 million; increased 24% year-over-year and 10%
    sequentially
--  Gross margin impacted by charges; underlying gross margin rate
    remained strong
--  Reduced operating expenses 30% year-over-year
    

"Our achievements in the second quarter were significant. We expect the magnitude of our Tier 1 win will be felt across all regions and verticals," said James Brear, president and CEO of Procera. "This win, along with our continued success in the Higher Education market, validates our technology leadership."

Total revenue for Q2'09 was $3.2 million, an increase of 24% from $2.6 million of revenue reported in the second quarter of 2008 (Q2'08). The GAAP net loss for Q2'09 was $4.3 million, or a loss of $(0.05) per diluted share. This compares to a GAAP net loss of $3.9 million, or a loss of $(0.05) per diluted share, in Q2'08.

Non-GAAP net loss for Q2'09 was $1.7 million, as compared to non-GAAP net loss for Q2'08 of $2.9 million.

An archive of the August 12, 2009 conference call will be available at the Investor Relations section of Procera Networks' website, www.proceranetworks.com, by no later than August 14, 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 purchase 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 the testing and acceptance of our products under the Tier 1 purchase order and during the trial period; 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

To supplement our 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." Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our 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. Investors should note that the use of intangible assets contributed to revenues earned 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, 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 discounts related to convertible promissory notes that were issued and converted within Q2'09.

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 400 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 around the globe. More information is available at www.proceranetworks.com.

Procera Networks is a registered trademark, and PacketLogic and DRDL are trademarks of Procera Networks, Inc. All rights reserved. All other products or brands mentioned are trademarks and/or service marks of their respective owners.

Procera Networks, Inc.
Condensed Consolidated Statements of Operations
Unaudited

                           Three Months Ended         Six Months Ended
                                June 30,                  June 30,
                        ------------------------  ------------------------
                            2009         2008         2009         2008
                        -----------  -----------  -----------  -----------
Sales
  Product sales         $ 2,550,845  $ 2,205,002  $ 4,721,888  $ 3,538,766
  Support sales             682,874      410,296    1,459,165      792,306
                        -----------  -----------  -----------  -----------
    Total sales           3,233,719    2,615,298    6,181,053    4,331,072
Cost of sales
  Product cost of sales   2,270,580    1,304,905    3,939,328    2,393,744
  Support cost of sales      85,317      155,925      204,489      298,144
                        -----------  -----------  -----------  -----------
    Total cost of sales   2,355,897    1,460,830    4,143,817    2,691,888
                        -----------  -----------  -----------  -----------

    Gross profit            877,822    1,154,468    2,037,236    1,639,184
                        -----------  -----------  -----------  -----------
                               27.1%        44.1%        33.0%        37.8%
Operating expenses:
  Research and
   development              683,307    1,026,411    1,319,449    1,688,533
  Sales and marketing     1,653,930    2,344,136    3,338,791    4,368,477
  General and
   administrative         1,389,595    1,971,059    2,719,040    3,496,152
                        -----------  -----------  -----------  -----------
    Total operating
     expenses             3,726,832    5,341,606    7,377,280    9,553,162
                        -----------  -----------  -----------  -----------

Loss from operations     (2,849,010)  (4,187,138)  (5,340,044)  (7,913,978)
                        -----------  -----------  -----------  -----------

Other income (expense)
  Interest and other
   income                    12,309       14,585       25,269       25,883
  Interest and other
   expense               (1,730,657)     (26,562)  (1,767,453)     (34,803)
                        -----------  -----------  -----------  -----------
    Total other income
     (expense)           (1,718,348)     (11,977)  (1,742,184)      (8,920)

  Loss before income
   taxes                 (4,567,358)  (4,199,115)  (7,082,228)  (7,922,898)
Income tax benefit          234,763      282,545      415,580      522,391
                        -----------  -----------  -----------  -----------
  Net loss              $(4,332,595) $(3,916,570) $(6,666,648) $(7,400,507)
                        ===========  ===========  ===========  ===========

Net loss per share -
 basic and diluted      $     (0.05) $     (0.05) $     (0.08) $     (0.10)
                        ===========  ===========  ===========  ===========

Shares used in
 computing net loss per
 share-basic and
 diluted                 86,943,149   77,119,655   85,687,768   76,618,915







Procera Networks, Inc.
Condensed Consolidated Balance Sheets

                                                  June 30,    December 31,
                                                    2009          2008
                                                ------------  ------------
ASSETS                                           Unaudited
Current Assets:
  Cash and cash equivalents                     $  2,303,901  $  1,721,225
  Accounts receivable, net of allowance            5,686,469     5,454,745
  Inventories, net                                 2,925,337     3,445,802
  Prepaid expenses and other                         627,457       824,340
                                                ------------  ------------
Total current assets                              11,543,164    11,446,112

Property and equipment, net                        1,216,342     2,573,045
Purchased intangible assets, net                     244,905       964,405
Goodwill                                             960,209       960,209
Other non-current assets                              47,600        47,294
                                                ------------  ------------
Total assets                                    $ 14,012,220  $ 15,991,065
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $  1,629,220  $  2,457,430
  Deferred revenue                                 1,560,735     1,313,092
  Accrued liabilities                              1,355,587     1,841,442
  Notes payable                                      650,000       550,000
  Capital leases payable                                   -        11,543
                                                ------------  ------------
Total current liabilities                          5,195,542     6,173,507

Non-current liabilities
  Deferred rent                                       27,890        24,234
  Deferred tax liability                             176,687       695,239
  Capital leases payable                                   -        39,584
                                                ------------  ------------
Total liabilities                                  5,400,119     6,932,564

Commitments and contingencies                              -             -

Stockholders' equity:
  Common stock                                        94,083        84,498
  Additional paid-in capital                      67,080,737    61,142,430
  Accumulated other comprehensive loss              (155,751)     (428,107)
  Accumulated deficit                            (58,406,968)  (51,740,320)
                                                ------------  ------------
Total stockholders' equity                         8,612,101     9,058,501
                                                ------------  ------------

Total liabilities and stockholders' equity      $ 14,012,220  $ 15,991,065
                                                ============  ============






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

                        Three Months Ended             Six Months Ended
                ----------------------------------  ----------------------
                 June 30,   March 31,    June 30,    June 30,    June 30,
                   2009        2009        2008        2009        2008
                ----------  ----------  ----------  ----------  ----------

Sales - U.S.
 GAAP as
 reported        3,233,719   2,947,334   2,615,298   6,181,053   4,331,072

Reconciliation
 of Gross
 Profit:
  U.S. GAAP as
   reported        877,822   1,159,414   1,154,468   2,037,236   1,639,184
  As a
   percentage
   of sales             27%         39%         44%         33%         38%
  Adjustment:
    Amortization
     on
     intangibles
     (1)           381,500     381,500     381,500     763,000     763,000
    Stock-based
     compensation
     (2)            16,395      18,059       6,845      34,454      13,241
                ----------  ----------  ----------  ----------  ----------
  As Adjusted    1,275,717   1,558,973   1,542,813   2,834,690   2,415,425
  As a
   percentage
   of sales             39%         53%         59%         46%         56%

Reconciliation
 of Operating
 Expense:
  U.S. GAAP as
   reported      3,726,832   3,650,448   5,341,606   7,377,280   9,553,162
  Adjustment:
    Amortization
     on
     intangibles
     (1)           545,083     545,083     545,083   1,090,166   1,090,166
    Stock-based
     compensation
     (2)           271,285     304,369     378,709     575,654     807,445
                ----------  ----------  ----------  ----------  ----------
  As Adjusted    2,910,464   2,800,996   4,417,814   5,711,460   7,655,551

Reconciliation
 of Net Loss:
  U.S. GAAP as
   reported     (4,332,595) (2,334,053) (3,916,570) (6,666,648) (7,400,507)
  Adjustment:
    Amortization
     on
     intangibles
     (1)           926,583     926,583     926,583   1,853,166   1,853,166
    Stock-based
     compensation
     (2)           287,680     322,428     385,554     610,108     820,686
    Interest
     related
     to
     embedded
     stock
     option
     (3)         1,644,756           -           -   1,644,756           -
    Income
     tax
     adjustment
     (4)          (259,904)   (259,904)   (259,904)   (519,808)   (519,808)
                ----------  ----------  ----------  ----------  ----------
  As Adjusted   (1,733,480) (1,344,946) (2,864,337) (3,078,426) (5,246,462)
                ==========  ==========  ==========  ==========  ==========

(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 intrinsic value of embedded common stock
option feature of converted promissory notes.
(4) Income tax benefit from the amortization of intangible assets.

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