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Procera Networks Announces Second Quarter 2014 Financial Results

Companies mentioned in this article: Procera Networks, Inc.

FREMONT, Calif., Aug. 6, 2014 /PRNewswire/ -- Procera Networks, Inc. (NASDAQ: PKT), the global Internet intelligence company, today reported financial results for its second quarter 2014 ended on June 30, 2014.

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Second Quarter 2014 Financial & Business Highlights

    --  Reports record second quarter revenue of $20.6 million, up 16%
        year-over-year; bookings of $23.9 million.
    --  Bookings reflect our first important wins following our expansion in
        Africa.
    --  Added 12 new service provider customers, including three new Tier 1
        service providers.
    --  Received expansion orders from 10 current Tier 1 customers.
    --  Received a follow-on order for ContentLogic from an existing Tier 1 EMEA
        Mobile operator customer.
    --  Extended performance leadership with the launch of the new 600 Gbps
        PL20000 with 100 gigabit interfaces.
    --  Announced RAN Perspectives, a new Subscriber Experience solution for
        mobile broadband operators that delivers real-time location and RAN QoE
        awareness.

Revenue for the second quarter of 2014 was $20.6 million, up 16% from revenue of $17.8 million in the second quarter of 2013. GAAP net loss for the second quarter of 2014 was $1.4 million, or $0.07 per diluted share, compared to GAAP net loss of $3.3 million, or $0.16 per diluted share, for the second quarter of 2013. Non-GAAP net profit for the second quarter of 2014 was $19,000 or $0.00 per diluted share, compared to non-GAAP net loss of $0.3 million, or $0.02 per diluted share, for the second quarter of 2013. Bookings for the second quarter of 2014 were $23.9 million.

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.

"We are pleased with our revenue growth in international markets and our organic innovation," stated James Brear, President and CEO of Procera Networks. "Our market is evolving rapidly and we are maniacal in our focus on the broadband subscriber experience and delivering solutions to service providers that enable them to manage and monetize their networks."

Guidance

Procera is reiterating guidance of annual revenue growth of 15% for 2014. We expect to return to non-GAAP profitability in the second half of 2014.

This guidance is an estimate only and actual performance could differ. Procera's financial results historically have been volatile, and a number of uncertainties and other factors may cause Procera'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 second quarter 2014 results at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, August 6, 2014. A live audio webcast of the conference call along with supplemental financial information will also be accessible from the "Investor Relations" section of Procera's website at http://proceranetworks.com/investors. A replay will be available following the call on Procera's Investor Relations website and for one week at the following numbers: 1-877-870-5176 (domestic), 1-858-384-5517 (international) using ID# 13586709.

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 and product solution investments, a return to non-GAAP profitability in the second half of 2014, long-term growth and the market opportunity, the estimated future value of Procera's recently awarded business, potential applications for Procera's products, as well as Procera'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 Procera'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; Procera'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 or awards; its ability to achieve revenue recognition on awarded business; 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 than us; its ability to manage costs effectively; 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 Procera'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, 2013 and its Form 10-Q filed for the quarter ended March 31, 2014, and other reports filed with the SEC, which are available free of charge on the SEC's website at http://www.sec.gov and 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 Procera 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 U.S. 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 Procera's performance and its cash-generating potential.

Our non-GAAP financial measures include adjustments for stock-based compensation expenses; business development expenses; cost reduction efforts; and acquisition-related intangible asset and 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; expenses connected with cost reduction efforts; 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 Procera's operating performance. Cost reduction efforts occur with shifts in objectives and evolving requirements of the business and can result in fluctuating expenses connected with reducing employment in certain areas. We have excluded these expenses because they can vary significantly from period-to-period and are not considered a key measure of Procera's operating performance. Acquisition-related intangible asset and 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 Procera'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 Procera's activities. 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, including Procera's competitors. As such, this presentation of non-GAAP financial measures may not enhance the comparability of Procera's results to the results of other companies. 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.

Investor Relations Contact
Nicole Noutsios
NMN Advisors (for Procera Networks)
procera@nmnadvisors.com
1+510-315-1003

Media Contact
Bob Eastwood
Engage PR (for Procera Networks)
beastwood@engagepr.com
1+ 510-748-8200 x215


    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,
                                                                               --------                     --------

                                                                               2014                   2013                  2014            2013
                                                                               ----                   ----                  ----            ----

    Sales:

                                              Product sales                 $15,124                $13,617               $24,628         $24,028

                                              Support sales                   5,484                  4,222                10,521           7,982


                                              Total sales                    20,608                 17,839                35,149          32,010

    Cost of sales:

                                               Product cost
                                               of sales                       7,780                  6,283                12,871          12,370

                                               Support cost
                                               of sales                       1,085                    831                 2,151           1,546


                                              Total cost of sales             8,865                  7,114                15,022          13,916
                                                                              -----                  -----                ------          ------


                                              Gross profit                   11,743                 10,725                20,127          18,094
                                                                             ------                 ------                ------          ------

                                                                              57.0%                 60.1%                57.3%          56.5%

    Operating expenses:

                                               Research and
                                               development                    3,716                  4,186                 8,264           8,587

                                               Sales and
                                               marketing                      7,051                  7,349                13,928          13,970

                                               General and
                                               administrative                 2,442                  3,352                 5,552           6,989


                                              Total operating expenses       13,209                 14,887                27,744          29,546
                                                                             ------                 ------                ------          ------


    Loss from operations                                                 (1,466)               (4,162)              (7,617)       (11,452)
                                                                          ------                 ------                ------         -------


    Interest and other income (expense), net                                  83                     20                   111            (30)
                                                                             ---                    ---                   ---             ---


                                               Loss before
                                               income taxes                 (1,383)               (4,142)              (7,506)       (11,482)

    Income tax provision (benefit)                                            25                  (860)                (122)        (1,483)
                                                                             ---                   ----                  ----          ------

                                              Net loss                     $(1,408)              $(3,282)             $(7,384)       $(9,999)



    Net loss per share - basic and diluted                       $(0.07)    $(0.16)               $(0.36)              $(0.50)
                                                                  ======      ======                 ======                ======


    Shares used in computing net loss per
     share:

                                               Basic and
                                               diluted                       20,356                 19,997                20,342          19,971


    Procera Networks, Inc.

    Condensed Consolidated Balance Sheets

    (in thousands)

                                                            June 30,             December 31,

                                                                          2014                       2013
                                                                          ----                       ----

    ASSETS

    Current Assets:

                                           Cash and cash
                                           equivalents                 $25,278                    $90,774

                                           Short-term
                                           investments        81,859                    15,789

                                           Accounts
                                           receivable,
                                           net of
                                           allowance          18,311                    25,008

                                           Inventories,
                                           net                16,543                    18,836

                                           Prepaid
                                           expenses and
                                           other               2,696                     2,128


    Total current assets                                             144,687                    152,535


                                           Property and
                                           equipment, net      7,604                     7,121

                                           Intangible
                                           assets, net         5,471                     6,270

                                          Goodwill                        12,286                     12,326

                                           Deferred tax
                                           asset               1,429                     1,101

                                           Other non-
                                           current assets        114                        83


    Total assets                                                     $171,591                   $179,436
                                                                     ========                   ========


    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:

                                           Accounts
                                           payable                      $4,233                     $7,305

                                           Deferred
                                           revenue            11,957                    11,633

                                           Accrued
                                           liabilities         6,379                     6,721


    Total current liabilities                                         22,569                     25,659


    Non-current liabilities:

                                           Deferred
                                           revenue             3,605                     3,273

                                           Deferred tax
                                           liability           1,623                     1,690

                                          Deferred rent          127                       143


    Total liabilities                                                 27,924                     30,765


    Commitments and contingencies                         -        -


    Stockholders' equity:

                                          Common stock            21                        21

                                           Additional
                                           paid-in
                                           capital           222,285                   219,763

                                           Accumulated
                                           other
                                           comprehensive
                                           loss              (2,039)                  (1,897)

                                           Accumulated
                                           deficit          (76,600)                  (69,216)


    Total stockholders' equity                                       143,667                    148,671
                                                                     -------                    -------


    Total liabilities and stockholders'
     equity                                                         $171,591                   $179,436
                                                                    ========                   ========



    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 2014                      March 2014                               June 2013                          June 2014                            June 2013
                                                                                                  ---------                      ----------                               ---------                          ---------                            ---------

    Sales:

                            Product sales                                                 $15,124                         $9,504                                  $13,617                            $24,628                              $24,028

                            Support sales                                                   5,484                          5,037                                    4,222                             10,521                                7,982


                            Total sales                                                    20,608                         14,541                                   17,839                             35,149                               32,010

    Cost of sales:

                             Product cost of sales,
                             GAAP                                                           7,780                          5,091                                    6,283                             12,871                               12,370


                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                                (7)                            (15)                                    (20)                               (22)                                 (39)

                                                       Amortization of intangibles (2)                           (267)                           (262)                                   (284)                              (529)                                (544)

                                                       Cost reduction efforts (3)                                    -                           (237)                                       -                              (237)                                    -
                                                                                                                   ---                            ----                                      ---                               ----                                   ---

                             Product cost of
                             sales, non-GAAP                                                7,506                          4,577                                    5,979                             12,083                               11,787


                             Support cost of sales,
                             GAAP                                                           1,085                          1,066                                      831                              2,151                                1,546

                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                               (86)                            (82)                                    (48)                              (168)                                (141)
                                                                                                                   ---                              ---                                      ---                                ----                                  ----

                             Support cost of
                             sales, non-GAAP                                                  999                            984                                      783                              1,983                                1,405
                                                                                              ---                            ---                                      ---                              -----                                -----


                             Total cost of
                             sales, non-GAAP                                                8,505                          5,561                                    6,762                             14,066                               13,192
                                                                                            -----                          -----                                    -----                             ------                               ------

                             Gross profit, non-
                             GAAP                                                          12,103                          8,980                                   11,077                             21,083                               18,818
                                                                                           ------                          -----                                   ------                             ------                               ------

                                                                                                                 58.7%                           61.8%                                   62.1%                              60.0%                                58.8%

    Operating expenses:

                             Research and
                             development                                                    3,716                          4,548                                    4,186                              8,264                                8,587

                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                              (296)                           (388)                                   (216)                              (684)                                (716)

                                                       Cost reduction efforts (3)                                    -                           (206)                                       -                              (206)                                    -

                                                       Deferred compensation (4)                                     -                            (65)                                   (752)                               (65)                              (1,440)
                                                                                                                   ---                             ---                                     ----                                 ---                                ------

                             Research and
                             development, non-
                             GAAP                                                           3,420                          3,889                                    3,218                              7,309                                6,431



                            Sales and marketing                                             7,051                          6,877                                    7,349                             13,928                               13,970

                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                              (398)                           (408)                                   (376)                              (806)                                (963)

                                                       Amortization of intangibles (2)                           (115)                           (113)                                   (124)                              (228)                                (236)

                                                       Cost reduction efforts (3)                                (114)                            (74)                                       -                              (188)                                    -

                                                       Deferred compensation (4)                                     -                               -                                   (716)                                  -                              (1,370)
                                                                                                                   ---                             ---                                    ----                                 ---                               ------


                             Sales and
                             marketing, non-
                             GAAP                                                           6,424                          6,282                                    6,133                             12,706                               11,401


                             General and
                             administrative                                                 2,442                          3,110                                    3,352                              5,552                                6,989

                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                              (351)                           (420)                                   (487)                              (771)                                (886)

                                                       Cost reduction efforts (3)                                    -                            (27)                                       -                               (27)                                    -

                                                       Business development expenses (5)                             -                               -                                   (614)                                  -                              (1,616)


                             General and
                             administrative,
                             non-GAAP                                                       2,091                          2,663                                    2,251                              4,754                                4,487
                                                                                            -----                          -----                                    -----                              -----                                -----


                             Total operating
                             expenses, non-
                             GAAP                                                          11,935                         12,834                                   11,602                             24,769                               22,319
                                                                                           ------                         ------                                   ------                             ------                               ------


    Income (loss) from operations, non-GAAP                                                                    168                          (3,854)                                   (525)                            (3,686)                              (3,501)
                                                                                                               ---                           ------                                     ----                              ------                                ------


    Interest and other income (expense), net                                                                    83                               28                                       20                                 111                                  (30)
                                                                                                               ---                              ---                                      ---                                 ---                                   ---


                             Income (loss) before
                             income taxes, non-
                             GAAP                                                             251                        (3,826)                                   (505)                           (3,575)                             (3,531)


    Income tax provision (benefit)                                                                              25                            (147)                                   (860)                              (122)                              (1,483)

                             Non-GAAP
                             adjustments (6)                                                  207                            179                                      688                                386                                1,414
                                                                                              ---                            ---                                      ---                                ---                                -----

                             Income tax provision
                             (benefit), non-GAAP                                              232                             32                                    (172)                               264                                 (69)


                             Net income (loss),
                             non-GAAP                                                         $19                       $(3,858)                                  $(333)                          $(3,839)                            $(3,462)



    Net income (loss) per share - diluted, non-GAAP                                                          $0.00                          $(0.19)                                 $(0.02)                            $(0.19)                              $(0.17)
                                                                                                             =====                           ======                                   ======                              ======                                ======


    Shares used in computing diluted net income (loss) per share                                            20,356                           20,329                                   19,997                              20,342                                19,971



    Reconciliation of Net Income (Loss):

                               U.S. GAAP as reported                                     $(1,408)                      $(5,976)                                $(3,282)                          $(7,384)                            $(9,999)

                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                              1,138                            1,313                                    1,147                               2,451                                 2,745

                                                       Amortization of intangibles (2)                             382                              375                                      408                                 757                                   780

                                                       Cost reduction efforts (3)                                  114                              544                                        -                                658                                     -

                                                       Deferred compensation (4)                                     -                              65                                    1,468                                  65                                 2,810

                                                       Business development expenses (5)                             -                               -                                     614                                   -                                1,616

                                                       Income tax adjustment (6)                                 (207)                           (179)                                   (688)                              (386)                              (1,414)

                               As Adjusted                                                    $19                       $(3,858)                                  $(333)                          $(3,839)                            $(3,462)


                                                                                                                                                     -

    Reconciliation of Diluted Net Income (Loss) Per Share:

                               U.S. GAAP as reported                                      $(0.07)                       $(0.29)                                 $(0.16)                           $(0.36)                             $(0.50)


                             Non-GAAP
                             adjustments:

                                                       Stock-based compensation (1)                               0.05                             0.06                                     0.05                                0.12                                  0.14

                                                       Amortization of intangibles (2)                            0.02                             0.02                                     0.02                                0.04                                  0.04

                                                       Cost reduction efforts (3)                                 0.01                             0.03                                        -                               0.03                                     -

                                                       Deferred compensation (4)                                     -                            0.00                                     0.07                                0.00                                  0.14

                                                       Business development expenses (5)                             -                               -                                    0.03                                   -                                 0.08

                                                       Income tax adjustment (6)                                (0.01)                          (0.01)                                  (0.03)                             (0.02)                               (0.07)
                                                                                                                 -----                            -----                                    -----                               -----                                 -----

                               As Adjusted                                                  $0.00                        $(0.19)                                 $(0.02)                           $(0.19)                             $(0.17)



    Shares used in computing diluted net income (loss) per share                                            20,356                           20,329                                   19,997                              20,342                                19,971

    (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)              Severance and other employee-related
                     costs in connection with the Company's
                     cost-reduction efforts.

    (4)              Deferred compensation includes
                     amortization of amounts paid under
                     retention agreements with Vineyard's
                     three founders; these were paid during Q1
                     2014, after one year of continuous
                     employment with the Company.

    (5)              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.

    (6)              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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SOURCE Procera Networks, Inc.