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Procera Networks Announces First Quarter 2013 Financial Results

Procera Networks Announces First Quarter 2013 Financial Results 
FREMONT, CA -- (Marketwired) -- 05/02/13 --  Procera Networks, Inc.
(NASDAQ: PKT), the global intelligent policy enforcement company,
today reported financial results for its first quarter ended March
31, 2013. 
First Quarter 2013 Highlights 


 
--  Acquired Vineyard Networks Inc. on January 9, 2013
--  Record Q1 revenue of $14.2 million, up 15% from Q1 2012
--  Record Q1 bookings at $18.6 million, up 27% from Q1 2012
--  Added 21 new service provider customers, including 7 mobile operators
--  New Tier 1 win with mobile communications provider Orange Switzerland
--  Received multi-million dollar expansion order from North American
    cable company
--  Received multi-million dollar expansion order from Tier 1 service
    provider in Russia
--  Received multi-million dollar expansion order from large Western
    European service provider for PL20000 hardware
--  Support revenue of $3.8 million, up 50% from Q1 2012
--  18 direct Tier 1 trials ongoing or planned over the next 60 days
--  GAAP gross margin of 52% and net loss of $6.1 million
--  Non-GAAP gross margin of 55% and net loss of $3.1 million

  
"Our record revenue and bookings for the first quarter reflect our
continued positive traction in the market for our products, and our
pipeline is growing," said Jim Brear, President and CEO of Procera
Networks. "Our integration of Vineyard Networks has gone very well,
with significant opportunities on both the NAVL and PacketLogic sides
of the business, and we expect some significant new wins in the
coming months. We continue to expect to gain market share in 2013." 
First Quarter 2013 Financial Results
 Revenue for the first quarter
of 2013 was $14.2 million, up 15% from revenue of $12.3 million in
the first quarter of 2012.  
Net loss for the first quarter of 2013 was $6.1 million, or a loss of
$0.30 per diluted share, compared to net income of $579,000, or $0.04
per diluted share, for the first quarter of 2012. Non-GAAP net loss
for the first quarter of 2013 was $3.1 million, or a loss of $0.16
per diluted share, compared to non-GAAP net income of $1.9 million,
or $0.13 per diluted share, for the first quarter of 2012. 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. 
Financial Guidance
 Procera is revising its guidance for annual
revenue growth from between 25% to 30% to at least 30% for 2013. The
Company expects to gain market share in 2013 and continues to
anticipate that most of its revenue growth will occur in the second
half of 2013. Procera expects estimated non-GAAP operating expenses
of approximately $11.5 million in the second quarter of 2013 with
primarily variable pay increases thereafter. Because higher operating
expenses will precede its anticipated second half revenue growth,
Procera expects operating results in the second quarter of 2013 to be
in range of breakeven, on a non-GAAP basis.  
The guidance set forth above 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 prior results, performance or
achievements to be materially different from future results.  
Conference Call Information
 Procera Networks, Inc. will host a
conference call at 4:30 p.m. Eastern Time today, May 2, 2013, to
discuss its financial results for its first quarter ended March 31,
2013. Interested parties can access the live call by dialing
1-877-941-8416 or 1-480-629-9808 (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
Thursday, May 9, 2013, by dialing 800-406-7325 and entering the
replay code of 4612123 #. 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. 
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
revenue growth, operating expenses and operating results for 2013,
including the expected timing of revenue growth and expenses, and
future wins, the Company's pipeline for revenue and bookings,
opportunities for NAVL and PacketLogic, the market opportunity and an
increase in the Company's market share. 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 dependence on a limited
product line; 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 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"
section of its Form 10-K filed for the year ended December 31, 2012,
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, acquisitions and other significant
partnership arrangements; 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 and restricted stock 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. 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 industry-leading network intelligence for millions of
broadband connections worldwide. Procera's PacketLogic and NAVL
solutions enable carrier, service provider, enterprise, and consumer
networks to deliver a high quality of experience to their users
through actionable intelligence and sophisticated policy enforcement.
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        
                                                       March 31,            
                                           -------------------------------- 
                                                 2013             2012      
                                           ---------------  --------------- 
Sales:                                                                      
  Product sales                            $        10,411  $         9,829 
  Support sales                                      3,760            2,503 
                                           ---------------  --------------- 
    Total sales                                     14,171           12,332 
Cost of sales:                                                              
  Product cost of sales                              6,087            3,447 
  Support cost of sales                                663              222 
                                           ---------------  --------------- 
    Total cost of sales                              6,750            3,669 
                                           ---------------  --------------- 
                                                                            
    Gross profit                                     7,421            8,663 
                                           ---------------  --------------- 
                                                      52.4%            70.2%
Operating expenses:                                                         
  Research and development                           4,104            1,691 
  Sales and marketing                                6,354            4,006 
  General and administrative                         3,593            2,360 
                                           ---------------  --------------- 
    Total operating expenses                        14,051            8,057 
                                           ---------------  --------------- 
                                                                            
Income (loss) from operations                       (6,630)             606 
                                           ---------------  --------------- 
                                                                            
Interest and other income (expense), net               (50)               1 
                                           ---------------  --------------- 
                                                                            
  Income (loss) before income taxes                 (6,680)             607 
Income tax provision (benefit)                        (623)              28 
                                           ---------------  --------------- 
  Net income (loss)                        $        (6,057) $           579 
                                           ===============  =============== 
                                                                            
Net income (loss) per share - basic        $         (0.30) $          0.04 
      
                                     ===============  =============== 
Net income (loss) per share - diluted      $         (0.30) $          0.04 
                                           ===============  =============== 
                                                                            
Shares used in computing net income (loss)                                  
 per share:                                                                 
  Basic                                             19,931           14,547 
  Diluted                                           19,931           15,064 
                                                                            
                                                                            
                                                                            
                                                                            
Procera Networks, Inc.                                                      
Condensed Consolidated Balance Sheets                                       
(in thousands)                                                              
                                                                            
                                              March 31,       December 31,  
                                                 2013             2012      
                                           ---------------  --------------- 
ASSETS                                                                      
Current Assets:                                                             
  Cash and cash equivalents                $        16,536  $        30,933 
  Short-term investments                            99,684          100,762 
  Accounts receivable, net of allowance             12,895           16,603 
  Inventories, net                                  12,294           11,240 
  Prepaid expenses and other                         7,995            2,012 
                                           ---------------  --------------- 
Total current assets                               149,404          161,550 
                                                                            
Property and equipment, net                          5,593            4,474 
Goodwill                                            13,241              960 
Intanble assets, net                                 7,782                - 
Deferred tax asset                                     368                - 
Other non-current assets                                55               54 
                                           ---------------  --------------- 
Total assets                               $       176,443  $       167,038 
                                           ===============  =============== 
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable                         $         5,046  $         5,453 
  Deferred revenue                                   7,150            6,953 
  Accrued liabilities                                4,236            4,949 
                                           ---------------  --------------- 
Total current liabilities                           16,432           17,355 
                                                                            
Non-current liabilities:                                                    
  Deferred revenue                                   2,574            2,878 
  Deferred tax liability                             2,100                - 
                                           ---------------  --------------- 
Total liabilities                                   21,106           20,233 
                                                                            
Commitments and contingencies                            -                - 
                                                                            
Stockholders' equity:                                                       
  Common stock                                          21               20 
  Additional paid-in capital                       215,156          199,793 
  Accumulated other comprehensive loss                (851)             (76)
  Accumulated deficit                              (58,989)         (52,932)
                                           ---------------  --------------- 
Total stockholders' equity                         155,337          146,805 
                                           ---------------  --------------- 
                                                                            
Total liabilities and stockholders' equity $       176,443  $       167,038 
                                           ===============  =============== 
                                                                            
                                                                            
                                                                            
Procera Networks, Inc.                                                      
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information     
Unaudited                                                                   
(in thousands, except per share data)                                       
                                                                            
                                              Three Months Ended            
                                   ---------------------------------------- 
                                     March 31,   December 31,    March 31,  
                                       2013          2012          2012     
                                   ------------  ------------  ------------ 
                                                                            
Sales - U.S. GAAP as reported      $     14,171  $     16,569  $     12,332 
                                                                            
Reconciliation of Gross Profit:                                             
  U.S. GAAP as reported            $      7,421  $     10,727  $      8,663 
  As a percentage of sales                 52.4%         64.7%         70.2%
  Adjustment:                                                               
    Stock-based compensation (1)             60            52            34 
    Amortization of intangibles -                                           
     developed technology (2)               260             -             - 
                                   ------------  ------------  ------------ 
  As Adjusted                      $      7,741  $     10,779  $      8,697 
  As a percentage of sales                 54.6%         65.1%         70.5%
                                                                            
Reconciliation of Operating                                                 
 Expense:                                                                   
  U.S. GAAP as reported            $     14,051  $      9,563  $      8,057 
  Adjustment:                                                               
    Stock-based compensation (1)            878           539           677 
    Amortization of intangibles -                                           
     customer relationships (2)             112             -             - 
    Deferred compensation (3)             1,342             -             - 
    Business development expenses                                           
     (4)                                  1,002           590           646 
                                   ------------  ------------  ------------ 
  As Adjusted                      $     10,717  $      8,434  $      6,734 
                                                                            
Reconcil
iation of Net Income                                                
 (Loss):                                                                    
  U.S. GAAP as reported            $     (6,057) $      1,223  $        579 
  Adjustment:                                                               
    Stock-based compensation (1)            938           591           711 
    Amortization of intangibles (2)         372             -             - 
    Deferred compensation (3)             1,342             -             - 
    Business development expenses                                           
     (4)                                  1,002           590           646 
    Income tax adjustment (5)              (726)            -             - 
                                   ------------  ------------  ------------ 
  As Adjusted                      $     (3,129) $      2,404  $      1,936 
                                   ============  ============  ============ 
                                                                            
Reconciliation of Diluted Net                                               
 Income (Loss) Per Share:                                                   
  U.S. GAAP as reported            $      (0.30) $       0.06  $       0.04 
                                   ============  ============  ============ 
  Adjustment:                                                               
    Stock-based compensation (1)           0.05          0.03          0.05 
    Amortization of intangibles (2)        0.02             -             - 
    Deferred compensation (3)              0.07             -             - 
    Business development expenses                                           
     (4)                                   0.05          0.03          0.04 
    Income tax adjustment (5)             (0.04)            -             - 
                                   ------------  ------------  ------------ 
  As Adjusted                      $      (0.16) $       0.12  $       0.13 
                                   ============  ============  ============ 
                                                                            
  Shares used in computing diluted                                          
   net income (loss) per share           19,931        19,830        15,064 
                                                                            
(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 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.                                                  

  
Press Contact 
Fran Lowe
Engage PR for Procera Networks
510-748-8200 x225
flowe@engagepr.com  
Investor Relations Contact
Todd Kehrli 
Jim Byers
MKR Group Inc.
323-468-2300
pkt@mkr-group.com