Procera Networks, Inc. (NYSE Amex: PKT), a developer of Evolved
Deep Packet Inspection (DPI) solutions providing traffic awareness,
control and protection for complex networks, today reported
financial results for its second quarter ended June 30, 2010.
Q210 and 1H10 Key Highlights
-- Second quarter revenue of $4.8 million, up 48 percent year-over-year
-- Ninth consecutive quarter of year-over-year revenue growth
-- Gross margins improved to 57 percent from 27 percent year-over-year
-- Second quarter bookings of $6.7 million, up 100 percent over Q1 of 2010
-- 1st half of 2010 revenue of $8.1 million, up 31 percent year-over-year
-- Ended the second quarter with $9.7 million of cash and no debt
-- Generated positive cash flow from operations
-- Signed two new Tier-1 and three new Tier-2 customers in Q2 of 2010
-- Launched new, higher margin, PacketLogic PL8720 with strong initial
customer demand
"We continued to make significant progress during the second
quarter with the signing of two new Tier-1 customers, including the
largest Tier-1 customer we have worked with to date," said James
Brear, president and CEO of Procera Networks, Inc. "Our
industry-leading DPI solution continues to deliver the highest
performance on the market, displacing our competitors offerings and
increasing our market penetration. As Tier-1 cable operators look
to deploy their second generation of DPI solutions, our superior
technology and customer responsiveness allow us to convert these
major service providers into Procera customers. We remain focused
on expanding opportunities for follow-on orders with our new, as
well as existing customers, and obtaining initial orders from our
14 on-going or planned Tier-1 trials. We expect to begin
recognizing revenue from the larger new Tier-1 customers in the
third quarter, with the bulk of the revenue expected to come in
calendar 2011.
"Last quarter, we launched our PacketLogic PL8720 solution
specifically designed for customers with accelerating network
growth plans who are looking for a more economical 10GB port DPI
solution. Since the launch of this new, higher margin, advanced DPI
appliance, initial deployments have far exceeded our internal
expectations with wins at a new Tier-1 mobile and cable operator,
as well as deployments at multiple universities around the
globe.
"Another important development was our recent announcement of an
OEM agreement with GENBAND, a global leader of IP applications,
switching and service solutions. GENBAND plans to incorporate our
PacketLogic DPI technology into their industry-leading switching
portfolio. GENBAND will initially resell our DPI appliances under
their brand name, with future plans to integrate our DPI
capabilities directly into their GENBAND GENiUS platform. According
to Infonetics, a leading market research firm, GENBAND is the
leading carrier IP softswitch supplier in North America, with more
than 60% revenue share. We expect to begin recognizing revenue from
this OEM agreement beginning in the fourth quarter, with the bulk
of the revenue coming in calendar 2011 and beyond."
Q210 Financial Results
Total revenue for the second quarter of 2010 was $4.8 million, a
48% increase from $3.2 million in the second quarter of 2009. Total
revenue for the six-months ended June 30, 2010 was $8.1 million, a
31% increase from $6.1 million in the first six-months of 2009. The
GAAP net loss for the second quarter of 2010 was $822,000, or a net
loss of $0.01 per share, compared to a net loss of $4.3 million, or
a net loss of $0.05 per share, in the second quarter of 2009. The
GAAP net loss for the first six-months of 2010 was $2.3 million, or
a net loss of $0.02 per share, compared to a net loss of $6.7
million, or $0.08 per share for the first six-months of 2009.
The Non-GAAP net loss for the second quarter of 2010 was
$486,000, compared to non-GAAP net loss of $1.7 million in the
second quarter of 2009. The Non-GAAP net loss for the first
six-months of 2010 was $1.7 million, compared to a net loss of $3.1
million for the first six months of 2009. 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.
Conference Call Information
Procera Networks, Inc. will host a conference call at 4:30 p.m.
ET today to discuss its financial results for the second quarter
ended June 30, 2010. Interested parties can access the live call by
dialing 888-549-7742 or 480-629-9859 (International) and request
the "Procera" call. 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.
Safe Harbor Statement
This press release contains forward-looking statements,
including statements relating to timing for the recognition of
anticipated revenues, the potential for orders from Tier 1 and
other customers, the expected demand for Procera Networks' products
and services, and the plans under and potential benefits from the
OEM agreement with GENBAND. These forward-looking statements
involve risks and uncertainties, as well as assumptions that, if
they do not fully materialize or prove incorrect, could cause our
results to differ materially from those expressed or implied by
such forward-looking statements, including risks related to our
ability to raise capital; the acceptance and adoption of our
products; our ability to service and upgrade our products; lengthy
sales cycles and lab and field trial delays by service providers;
our dependence on a limited product line; our dependence on key
employees; our ability to compete in our industry with companies
that are significantly larger and have greater resources; our
ability to protect our intellectual property rights in a global
market; our ability to manufacture product quickly enough to meet
potential demand; and other risks and uncertainties described more
fully in our documents filed with or furnished to the Securities
and Exchange Commission. More information about these and other
risks that may impact Procera Networks' business are set forth in
our Form 10-K filed for the year ended December 31, 2009 and
subsequent quarterly reports on Form 10-Q. All forward-looking
statements in this press release are based on information available
to us as of the date hereof, and we assume no obligation to update
these forward-looking statements.
Use of Non-GAAP Financial Information
Procera's management believes that certain non-GAAP financial
measures, when taken together with the corresponding consolidated
GAAP measures and related segment information, provide incremental
insight into the underlying factors and trends affecting both
Procera's performance and its cash generating potential. Management
believes these non-GAAP measures increase the transparency of the
company's current results and enable investors to more fully
understand trends in its current and future performance.
Thus, 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 that we believe are helpful in understanding our financial
performance. For reconciliations of these non-GAAP financial
measures to the most directly comparable GAAP financial measures,
please see the section of the accompanying tables titled, "GAAP to
Non-GAAP Reconciliations." Management regularly uses these
supplemental non-GAAP financial measures internally to understand
and manage our business and forecast future periods. Our non-GAAP
financial measures include adjustments based on the following
items, as well as the related income tax benefits, if any:
Amortization of intangible assets: We have excluded the effect
of amortization of intangible assets from our non-GAAP net income.
Amortization of intangible assets is a non-cash expense, and it is
not part of our core operations that requires cash. Investors
should note that our intangible assets were essential for
generating revenues during the periods presented and will
contribute to future period revenues as well.
Stock-based compensation expenses: We have excluded the effect
of stock-based compensation from our non-GAAP gross profit,
operating expenses and net income measures. Although stock-based
compensation is a key incentive offered to our employees and
consultants, we continue to evaluate our business performance
excluding stock-based compensation expenses. Stock-based
compensation expenses will recur in future periods.
Non-cash interest expense: We have excluded the effect of a
non-cash charge to interest expense for the amortization of debt
discounts related to convertible promissory notes that were issued
and converted within the second quarter of 2009.
These non-GAAP financial measures are not consistent with GAAP
because they do not fully reflect non-cash expenses. The
above-mentioned non-GAAP measures are generated by adjusting the
related GAAP measures solely to reverse the effect of the above
mentioned non-cash expenses. The Company uses these financial
measures to provide additional insight into current operating and
business trends not readily apparent from the GAAP results.
Management believes users of Procera's financial statements will
benefit from greater transparency in referring to these non-GAAP
financial measures when assessing the Company's operating results,
as well as when forecasting and analyzing future periods. However,
management recognizes that:
-- these non-GAAP financial measures are limited in their usefulness and
should be considered only as a supplement to the Company's GAAP
financial measures;
-- these non-GAAP financial measures should be read in conjunction with our
consolidated financial statements prepared in accordance with GAAP;
-- these non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, the Company's GAAP financial measures;
-- these non-GAAP financial measures should not be considered to be
superior to the Company's GAAP financial measures;
-- these non-GAAP financial measures were not prepared in accordance with
GAAP and investors should not assume that the non-GAAP financial
measures presented in this earnings release were prepared under a
comprehensive set of rules or principles; and
-- management intends to continue to track and present these non-GAAP
financial measures for future periods.
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. 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.
A reconciliation of each non-GAAP financial measure to the most
directly comparable GAAP financial measure or measures appears at
the end of this press release.
About Procera Networks, Inc.
Procera Networks Inc. delivers Evolved DPI solutions that give
service providers awareness, control and protection of their
applications and networks. Its core product suite, the PacketLogic
line of platforms, leverages the company's advanced identification
engine, DRDL™ (Datastream Recognition Definition Language), to
provide accurate identification of network traffic in real-time.
PacketLogic is deployed at more than 600 broadband service
providers, telcos, governments and higher education campuses
worldwide. Founded in 2002, Procera (NYSE Amex: PKT) is based in
Silicon Valley and has offices in Europe and Australia. More
information is available at www.proceranetworks.com.
Procera Networks, Inc.
Condensed Consolidated Statements of Operations
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Sales
Product sales $ 3,713,591 $ 2,550,845 $ 6,096,555 $ 4,721,888
Support sales 1,063,167 682,874 1,973,812 1,459,165
----------- ----------- ----------- -----------
Total sales 4,776,758 3,233,719 8,070,367 6,181,053
Cost of sales
Product cost of sales 1,923,380 2,270,580 3,375,315 3,939,328
Support cost of sales 133,441 85,317 260,926 204,489
----------- ----------- ----------- -----------
Total cost of sales 2,056,821 2,355,897 3,636,241 4,143,817
----------- ----------- ----------- -----------
Gross profit 2,719,937 877,822 4,434,126 2,037,236
----------- ----------- ----------- -----------
56.9% 27.1% 54.9% 33.0%
Operating expenses:
Research and
development 790,626 683,307 1,411,120 1,319,449
Sales and marketing 1,760,005 1,653,930 3,217,501 3,338,791
General and
administrative 958,484 1,389,595 2,065,859 2,719,040
----------- ----------- ----------- -----------
Total operating
expenses 3,509,115 3,726,832 6,694,480 7,377,280
----------- ----------- ----------- -----------
Loss from operations (789,178) (2,849,010) (2,260,354) (5,340,044)
----------- ----------- ----------- -----------
Interest and other
income (expense), net (32,479) (1,718,348) (75,451) (1,742,184)
----------- ----------- ----------- -----------
Loss before income
taxes (821,657) (4,567,358) (2,335,805) (7,082,228)
Income tax provision
(benefit) - (234,763) 1,256 (415,580)
----------- ----------- ----------- -----------
Net loss $ (821,657) $(4,332,595) $(2,337,061) $(6,666,648)
=========== =========== =========== ===========
Net loss per share -
basic and diluted $ (0.01) $ (0.05) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Shares used in
computing net loss per
share - basic and
diluted 112,082,724 86,943,149 105,817,531 85,687,768
Procera Networks, Inc.
Condensed Consolidated Balance Sheets
June 30, December 31,
2010 2009
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,736,574 $ 3,191,896
Accounts receivable, net of allowance 5,121,098 8,908,620
Inventories, net 2,854,483 1,877,264
Prepaid expenses and other 609,222 692,007
------------ ------------
Total current assets 18,321,377 14,669,787
Property and equipment, net 897,380 589,717
Goodwill 960,209 960,209
Other non-current assets 58,327 103,307
------------ ------------
Total assets $ 20,237,293 $ 16,323,020
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ - $ 1,917,088
Accounts payable 2,027,221 1,003,225
Deferred revenue 2,872,400 2,103,060
Accrued liabilities 2,139,426 2,255,039
Notes payable - 500,000
------------ ------------
Total current liabilities 7,039,047 7,778,412
Non-current liabilities
Deferred rent - 29,371
------------ ------------
Total liabilities 7,039,047 7,807,783
Commitments and contingencies - -
Stockholders' equity:
Common stock 112,083 94,083
Additional paid-in capital 74,907,292 67,814,203
Accumulated other comprehensive loss (359,468) (268,449)
Accumulated deficit (61,461,661) (59,124,600)
------------ ------------
Total stockholders' equity 13,198,246 8,515,237
------------ ------------
Total liabilities and stockholders' equity $ 20,237,293 $ 16,323,020
============ ============
Procera Networks, Inc.
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information
Unaudited
Three Months Ended Six Months Ended
---------------------------------- -----------------------
June 30, March 31, June 30, June 30, June 30,
2010 2010 2009 2010 2009
---------- ---------- ---------- ---------- -----------
Sales - U.S.
GAAP as
reported 4,776,758 3,293,610 3,233,719 8,070,367 6,181,053
Reconciliation
of Gross
Profit:
U.S. GAAP as
reported 2,719,937 1,714,190 877,822 4,434,126 2,037,236
As a
percentage
of sales 57% 52% 27% 55% 33%
Adjustment:
Amortization
on
intangibles
(1) - - 381,500 - 763,000
Stock-based
compensation
(2) 22,123 21,727 16,395 43,850 34,454
---------- ---------- ---------- ---------- -----------
As Adjusted 2,742,060 1,735,917 1,275,717 4,477,976 2,834,690
As a
percentage
of sales 57% 53% 39% 55% 46%
Reconciliation
of Operating
Expense:
U.S. GAAP
as
reported 3,509,115 3,185,366 3,726,832 6,694,480 7,377,280
Adjustment:
Amortization
on
intangibles
(1) - - 545,083 - 1,090,166
Stock-based
compensation
(2) 313,161 282,875 271,285 596,036 575,654
---------- ---------- ---------- ---------- -----------
As Adjusted 3,195,954 2,902,491 2,910,464 6,098,444 5,711,460
Reconciliation
of Net Income
(Loss):
U.S. GAAP
as
reported (821,657) (1,515,404) (4,332,595) (2,337,061) (6,666,648)
Adjustment:
Amortization
on
intangibles
(1) - - 926,583 - 1,853,166
Stock-based
compensation
(2) 335,284 304,602 287,680 639,887 610,108
Interest
related to
beneficial
conversion
feature
(3) - - 1,644,756 - 1,644,756
Income tax
adjustment
(4) - - (259,904) - (519,808)
---------- ---------- ---------- ---------- -----------
As Adjusted (486,373) (1,210,802) (1,733,480) (1,697,174) (3,078,426)
========== ========== ========== ========== ===========
(1) The intangible assets recorded at fair value as a result of our
acquisitions are amortized over the estimated useful life of the respective
asset.
(2) Stock-based compensation expense is calculated in accordance with the
fair value recognition provisions of Statements of Financial Accounting
Standards No. 123 (R).
(3) Interest expense related to beneficial conversion feature of
convertible promissory notes.
(4) Income tax benefit from the amortization of intangible assets.
Press Contact Jon Linden Procera Networks, Inc. 1-408-890-7039
jon.linden@proceranetworks.com Investor Relations Contact Charles
Messman or Todd Kehrli MKR Group Inc. 323-468-2300
pkt@mkr-group.com
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