Procera Networks Announces Second Quarter 2013 Financial Results

Procera Networks Announces Second Quarter 2013 Financial Results 
Second Quarter Revenue Grew 22% Year-Over-Year to $17.8 Million 
Expanded Partnerships With Tata Communications and Openet 
FREMONT, CA -- (Marketwired) -- 08/07/13 --  Procera Networks, Inc.
(NASDAQ: PKT), the global intelligent policy enforcement company,
today reported financial results for its second quarter ended June
30, 2013. 
Revenue for the second quarter of 2013 was $17.8 million, up 22% from
revenue of $14.7 million in the second quarter of 2012.  
GAAP net loss for the second quarter of 2013 was $3.3 million, or a
loss of $0.16 per diluted share, compared to net income of $766,000,
or $0.04 per diluted share, for the second quarter of 2012. Non-GAAP
net loss for the second quarter of 2013 was $0.3 million, or a loss
of $0.02 per diluted share, compared to non-GAAP net income of $1.4
million, or $0.08 per diluted share, for the second quarter of 2012.
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. 
"Procera continues to execute on the initiatives that will position
us as a leader in our market and expand our customer base. We
recently made a number of announcements that show the progress we are
making winning large deals and partnering with influential industry
players. In addition, the integration of Vineyard has gone well and
performance is strong, with revenue up 63% sequentially," stated Jim
Brear, President and CEO of Procera Networks. "The strategic
investments we are making in the business continue to position us
well for long-term growth." 
Second Quarter 2013 Business Highlights 


 
--  Added 10 new service provider customers during the second quarter,
    including two mobile operators.
--  Booked four Tier 1 service provider expansion orders.
--  Vineyard Networks, our acquisition completed last quarter, grew
    revenue 63% sequentially in the second fiscal quarter.
--  Selected for important partnership with Tata Communications in which
    Tata leverages our ability to quickly offer revenue generating
    services with a high ROI.
--  Partnered with Openet to launch revenue express solutions for mobile
    operators.
--  Launched Virtualized PacketLogic(TM), reducing the cost of
    acquisition and ownership for Internet Intelligence solutions and
    moving to a much faster service delivery method, all with the same
    software functionality as current hardware platforms.
--  Announced our Dynamic LiveView product, which provides unparalleled
    real-time visibility for network operators to troubleshoot and conduct
    forensic analysis on their network.

  
Guidance 
 Procera is reiterating its guidance for annual revenue
growth of at least 30% for 2013. The Company expects to gain market
share in 2013.  
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 prior results, performance or achievements to be
materially different from future results.  
Conference Call Information 
Procera Networks, Inc. is hosting a conference call for analysts and
investors to discuss its second quarter 2013 results and outlook for
its third quarter of 2013 at 1:30 p.m. Pacific time (4:30 p.m.
Eastern time) today, August 7, 2013. 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: (800)
406-7325 (domestic), (303) 590-3030: (international) using ID#
4629852. 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
2013 revenue growth and long-term growth, the market opportunity and
an increase in the Company's market share over 2013, 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 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 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 March 31,
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 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, 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 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     Six Months Ended   
                                       June 30,              June 30,       
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Sales:                                                                      
  Product sales                  $  13,617  $  11,863  $  24,028  $  21,692 
  Support sales                      4,222      2,802      7,982      5,305 
                                 ---------  ---------  ---------  --------- 
    Total sales                     17,839     14,665     32,010     26,997 
Cost of sales:                                                              
  Product cost of sales              6,283      5,171     12,370      8,619 
  Support cost of sales                831        247      1,546        469 
                                 ---------  ---------  ---------  --------- 
    Total cost of sales              7,114      5,418     13,916      9,088 
                                 ---------  ---------  ---------  --------- 
                                                                            
    Gross profit                    10,725      9,247     18,094     17,909 
                                 ---------  ---------  ---------  --------- 
                                      60.1%      63.1%      56.5%      66.3%
Operating expenses:                                                         
  Research and development           4,186      1,791      8,587      3,482 
  Sales and marketing                7,349      4,474     13,970      8,480 
  General and administrative         3,352      2,078      6,989      4,437 
                                 ---------  ---------  ---------  --------- 
    Total operating expenses        14,887      8,343     29,546     16,399 
                                 ---------  ---------  ---------  --------- 
                                                                            
Income (loss) from operations       (4,162)       904    (11,452)     1,510 
                                 ---------  ---------  ---------  --------- 
                                                                            
Interest and other income                                                   
 (expense), net                         20        (54)       (30)       (53)
                                 ---------  ---------  ---------  --------- 
                                                                            
  Income (loss) before income                                               
   taxes                            (4,142)       850    (11,482)     1,457 
Income tax provision (benefit)        (860)        84     (1,483)       112 
                                 ---------  ---------  ---------  --------- 
  Net income (loss)              $  (3,282) $     766  $  (9,999) $   1,345 
                                 =========  =========  =========  ========= 
                                                                            
Net income (loss) per share -                                               
 basic                           $   (0.16) $    0.04  $   (0.50) $    0.08 
                                 =========  =========  =========  ========= 
Net income (loss) per share -                                               
 diluted                         $   (0.16) $    0.04  $   (0.50) $    0.08 
                                 =========  =========  =========  ========= 
                                                                            
Shares used in computing net                                                
 income (loss) per share:                                                   
  Basic                             19,997     17,992     19,971     16,276 
  Diluted                           19,997     18,510     19,971     16,797 
                                                                            
                                                                            
                                                                            
Procera Networks, Inc.                                                      
Condensed Consolidated Balance Sheets                                       
(in thousands)                                                              
                                                                            
                                                   June 30,    December 31, 
                                                     2013          2012     
                                                 ------------  ------------ 
ASSETS                                                                      
Current Assets:                                                             
  Cash and cash equivalents                      $     44,042  $     30,933 
  Short-term investments                               66,766       100,762 
  Accounts receivable, net of allowance                17,166        16,603 
  Inventories, net                                     18,943        11,240 
  Prepaid expenses and other                            5,216         2,012 
                                                 ------------  ------------ 
Total current assets                                  152,133       161,550 
                                                                            
Property and equipment, net                             5,574         4,474 
Intangible assets, net                                  7,134             - 
Goodwill                                               12,841           960 
Deferred tax asset                                        949             - 
Other non-current assets                                   52            54 
                                                 ------------  ------------ 
Total assets                                     $    178,683  $    167,038 
                                                 ============  ============ 
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
Current liabilities:                                                        
  Accounts payable                               $      7,658  $      5,453 
  Deferred revenue                                      8,849         6,953 
  Accrued liabilities                                   5,456         4,949 
                                                 ------------  ------------ 
Total current liabilities                              21,963        17,355 
                                                                            
Non-current liabilities:                                                    
  Deferred revenue                                      2,294         2,878 
  Deferred tax liability                                1,944             - 
                                                 ------------  ------------ 
Total liabilities                                      26,201        20,233 
                                                                            
Commitments and contingencies                               -             - 
                                                                            
Stockholders' equity:                                                       
  Common stock                                             21            20 
  Additional paid-in capital                          217,071       199,793 
  Accumulated other comprehensive loss                 (1,679)          (76)
  Accumulated deficit                                 (62,931)      (52,932)
                                                 ------------  ------------ 
Total stockholders' equity                            152,482       146,805 
                                                 ------------  ------------ 
                                                                            
Total liabilities and stockholders' equity       $    178,683  $    167,038 
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
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      March     June      June      June   
                             2013      2013      2012      2013      2012   
                           --------  --------  --------  --------  -------- 
Sales:                                                                      
  Product sales            $ 13,617  $ 10,411  $ 11,863  $ 24,028  $ 21,692 
  Support sales               4,222     3,760     2,802     7,982     5,305 
                           --------  --------  --------  --------  -------- 
    Total sales              17,839    14,171    14,665    32,010    26,997 
Cost of sales:                                                              
  Product cost of sales,                                                    
   GAAP                       6,283     6,087     5,171    12,370     8,619 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)         (20)      (19)      (22)      (39)      (51)
      Amortization of                                                       
       intangibles (2)         (284)     (260)        -      (544)        - 
                           --------  --------  --------  --------  -------- 
    Product cost of sales,                                                  
     non-GAAP                 5,979     5,808     5,149    11,787     8,568 
  Support cost of sales,                                                    
   GAAP                         831       715       247     1,546       469 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)         (48)      (93)       (8)     (141)      (13)
    Support cost of sales,                                                  
     non-GAAP                   783       622       239     1,405       456 
                           --------  --------  --------  --------  -------- 
    Total cost of sales,                                                    
     non-GAAP                 6,762     6,430     5,388    13,192     9,024 
                           --------  --------  --------  --------  -------- 
    Gross profit, non-GAAP   11,077     7,741     9,277    18,818    17,973 
                           --------  --------  --------  --------  -------- 
                               62.1%     54.6%     63.3%     58.8%     66.6%
Operating expenses:                                                         
  Research and development    4,186     4,401     1,791     8,587     3,482 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)        (216)     (500)     (124)     (716)     (220)
      Deferred compensation                                                 
       (3)                     (752)     (688)        -    (1,440)        - 
                           --------  --------  --------  --------  -------- 
    Research and                                                            
     development, non-GAAP    3,218     3,213     1,667     6,431     3,262 
                                                                            
                                                                            
  Sales and marketing         7,349     6,621     4,474    13,970     8,480 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)        (376)     (587)     (323)     (963)     (646)
      Amortization of                                                       
       intangibles (2)         (124)     (112)        -      (236)        - 
      Deferred compensation                                                 
       (3)                     (716)     (654)        -    (1,370)        - 
                           --------  --------  --------  --------  -------- 
    Sales and marketing,                                                    
     non-GAAP                 6,133     5,268     4,151    11,401     7,834 
                                                                            
  General and                                                               
   administrative             3,352     3,637     2,078     6,989     4,437 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)        (487)     (399)     (184)     (886)     (442)
      Business development                                                  
       costs (4)               (614)   (1,002)        -    (1,616)     (646)
                           --------  --------  --------  --------  -------- 
    General and                                                             
     administrative, non-                                                   
     GAAP                     2,251     2,236     1,894     4,487     3,349 
                           --------  --------  --------  --------  -------- 
    Total operating                                                         
     expenses, non-GAAP      11,602    10,717     7,712    22,319    14,445 
                           --------  --------  --------  --------  -------- 
                                                                            
Income (loss) from                                                          
 operations, non-GAAP          (525)   (2,976)    1,565    (3,501)    3,528 
                           --------  --------  --------  --------  -------- 
                                                                            
Interest and other income                                                   
 (expense), net                  20       (50)      (54)      (30)      (53)
                           --------  --------  --------  --------  -------- 
                                                                            
  Income (loss) before                                                      
   income taxes, non-GAAP      (505)   (3,026)    1,511    (3,531)    3,475 
                                                                            
Income tax provision                                                        
 (benefit)                     (860)     (623)       84    (1,483)      112 
    Non-GAAP adjustments                                                    
     (5)                        688       726         -     1,414         - 
                           --------  --------  --------  --------  -------- 
  Income tax provision                                                      
   (benefit), non-GAAP         (172)      103        84       (69)      112 
                           --------  --------  --------  --------  -------- 
  Net income (loss), nom-                                                   
   GAAP                    $   (333) $ (3,129) $  1,427  $ (3,462) $  3,363 
                           ========  ========  ========  ========  ======== 
                                                                            
Net income (loss) per share                                                 
 - diluted, non-GAAP       $  (0.02) $  (0.16) $   0.08  $  (0.17) $   0.20 
                           ========  ========  ========  ========  ======== 
                                                                            
Shares used in computing                                                    
 diluted net income (loss)                                                  
 per share                   19,997    19,931    18,510    19,971    16,797 
                                                                            
Reconciliation of Net                                                       
 Income (Loss):                                                             
  U.S. GAAP as reported    $ (3,282) $ (6,717) $    766  $ (9,999) $  1,345 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)       1,147     1,598       661     2,745     1,372 
      Amortization of                                                       
       intangibles (2)          408       372         -       780         - 
      Deferred compensation                                                 
       (3)                    1,468     1,342         -     2,810         - 
      Business development                                                  
       expenses (4)             614     1,002         -     1,616       646 
      Income tax adjustment                                                 
       (5)                     (688)     (726)        -    (1,414)        - 
                           --------  --------  --------  --------  -------- 
  As Adjusted              $   (333) $ (3,129) $  1,427  $ (3,462) $  3,363 
                           ========  ========  ========  ========  ======== 
                                            -                               
Reconciliation of Diluted                                                   
 Net Income (Loss) Per                                                      
 Share:                                                                     
  U.S. GAAP as reported    $  (0.16) $  (0.34) $   0.04  $  (0.50) $   0.08 
                           ========  ========  ========  ========  ======== 
    Non-GAAP adjustments:                                                   
      Stock-based                                                           
       compensation (1)        0.06      0.08      0.04      0.14      0.08 
      Amortization of                                                       
       intangibles (2)         0.02      0.02         -      0.04         - 
      Deferred compensation                                                 
       (3)                     0.07      0.07         -      0.14         - 
      Business development                                                  
       expenses (4)            0.03      0.05         -      0.08      0.04 
      Income tax adjustment                                                 
       (5)                    (0.03)    (0.04)        -     (0.07)        - 
                           --------  --------  --------  --------  -------- 
  As Adjusted              $  (0.02) $  (0.16) $   0.08  $  (0.17) $   0.20 
                           ========  ========  ========  ========  ======== 
                                                                            
Shares used in computing                                                    
 diluted net income (loss)                                                  
 per share                   19,997    19,931    18,510    19,971    16,797 
                                                                            
(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.                                                       

  
Investor Relations Contact
Nicole Noutsios
NMN Advisors (for Procera Networks)
procera@nmnadvisors.com 
1+510-315-1003  
Media Contact
Fran Lowe
Engage PR (for Procera Networks)
flowe@engagepr.com
1+510-748-8200 x225 
 
 
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