PROCERA NETWORKS, INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 1, 2014

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Exhibit 99.1

 
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 Announces
First Quarter 2014 Financial Results


Fremont, CA – May 1, 2014 – Procera Networks, Inc. (NASDAQ: PKT), the global Internet intelligence company, today reported financial results for its first quarter 2014 ended on March 31, 2014.

First Quarter 2014 Business and Financial Highlights

— Reports first quarter revenue of $14.5 million, meets Procera’s guidance for the quarter.

— First quarter bookings of $10.9 million.

— Recently awarded business at two new Tier 1 service providers in Asia and initial business is valued at approximately $3.5 million (not reflected in bookings and one of the awards was in April).

— Added 16 new service provider customers, of which 13 are mobile operators; mobile operators contributed 49% of product revenue.

— Received expansion orders from 12 current Tier 1 customers.

— Selected by a Tier 1 Mobile operator in the U.S. for a field trial of our analytics and personalized services.

— Expanded our Network Function Virtualization partnerships by joining Alcatel-Lucent’s CloudbandTM Ecosystem as a go-to-market partner.

— Procera’s Network Application Visibility Library (NAVL) was selected by GFI SoftwareTM to enhance GFI WebMonitorTM, one of the industry’s leading web security solutions for small to mid-size businesses.

Revenue for the first quarter of 2014 was $14.5 million, up 3% from revenue of $14.2 million in the first quarter of 2013. GAAP net loss for the first quarter of 2014 was $6.0 million, or $0.29 per diluted share, compared to GAAP net loss of $6.7 million, or $0.34 per diluted share, for the first quarter of 2013. Non-GAAP net loss for the first quarter of 2014 was $3.9 million, or $0.19 per diluted share, compared to non-GAAP net loss of $3.1 million, or $0.16 per diluted share, for the first quarter of 2013. Bookings for the first quarter of 2014 were $10.9 million.

A description of the non-GAAP financial measures and a reconciliation to comparable GAAP measures is provided in the accompanying table entitled “Use of Non-GAAP Financial Information” below.

“Procera continues a rapid pace of innovation and development in Virtualization and customer experience solutions.  Our advances are attracting new trials and partnerships with industry leaders that position us well for competitive differentiation,” stated James Brear, President and CEO of Procera Networks.  “We will continue to invest in  broadband and mobile solutions for long-term growth.”

Guidance

Procera is reiterating guidance of annual revenue growth of 15% for 2014.  We expect a 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 first quarter 2014 results  at 1:30 p.m. Pacific time (4:30 p.m. Eastern time) today, May 1, 2014. A live audio webcast of the conference call along with supplemental financial information will also be accessible from the “Investors 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: (855) 859-2056 (domestic), (404) 537-3406 (international) using ID# 22247157.

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, 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 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. 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 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.
Procera Networks, Inc.
Condensed Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)

 
  
Three Months Ended
March 31,
  
 
  
2014
    
2013
  
Sales:
  
   
 
Product sales
  
$
9,504
    
$
10,411
  
Support sales
    
5,037
      
3,760
  
Total sales
    
14,541
      
14,171
  
Cost of sales:
                
Product cost of sales
    
5,091
      
6,087
  
Support cost of sales
    
1,066
      
715
  
Total cost of sales
    
6,157
      
6,802
  
 
                
Gross profit
    
8,384
      
7,369
  
 
    
57.7
%
    
52.0
%
Operating expenses:
                
Research and development
    
4,548
      
4,401
  
Sales and marketing
    
6,877
      
6,621
  
General and administrative
    
3,110
      
3,637
  
Total operating expenses
    
14,535
      
14,659
  
 
                
Loss from operations
    
(6,151
)
    
(7,290
)
 
                
Interest and other income (expense), net
    
28
      
(50
)
 
                
Loss before income taxes
    
(6,123
)
    
(7,340
)
Income tax provision (benefit)
    
(147
)
    
(623
)
Net loss
  
$
(5,976
)
  
$
(6,717
)
 
                
Net loss per share - basic and diluted
  
$
(0.29
)
  
$
(0.34
)
 
                
Shares used in computing net loss per share:
                
Basic and diluted
    
20,329
      
19,931
  

Procera Networks, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

 
  
March 31,
2014
    
December 31,
2013
  
ASSETS
  
   
 
Current Assets:
  
   
 
Cash and cash equivalents
  
$
32,877
    
$
90,774
  
Short-term investments
    
73,435
      
15,789
  
Accounts receivable, net of allowance
    
12,965
      
25,008
  
Inventories, net
    
20,229
      
18,836
  
Prepaid expenses and other
    
2,086
      
2,128
  
Total current assets
    
141,592
      
152,535
  
 
                
Property and equipment, net
    
7,658
      
7,121
  
Intangible assets, net
    
5,665
      
6,270
  
Goodwill
    
11,911
      
12,326
  
Deferred tax asset
    
1,210
      
1,101
  
Other non-current assets
    
91
      
83
  
Total assets
  
$
168,127
    
$
179,436
  
 
                
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Current liabilities:
                
Accounts payable
  
$
3,651
    
$
7,305
  
Deferred revenue
    
10,458
      
11,633
  
Accrued liabilities
    
5,919
      
6,721
  
Total current liabilities
    
20,028
      
25,659
  
 
                
Non-current liabilities:
                
Deferred revenue
    
2,957
      
3,273
  
Deferred tax liability
    
1,599
      
1,690
  
Other long-term liabilities
    
136
      
143
  
Total liabilities
    
24,720
      
30,765
  
 
                
Commitments and contingencies
    
-
      
-
  
 
                
Stockholders' equity:
                
Common stock
    
21
      
21
  
Additional paid-in capital
    
221,145
      
219,763
  
Accumulated other comprehensive loss
    
(2,567
)
    
(1,897
)
Accumulated deficit
    
(75,192
)
    
(69,216
)
Total stockholders' equity
    
143,407
      
148,671
  
 
                
Total liabilities and stockholders' equity
  
$
168,127
    
$
179,436
  

Procera Networks, Inc.
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information
Unaudited
(in thousands, except per share data)

 
  
Three Months Ended
  
 
  
March 31
2014
    
December 31,
2013
    
March 31,
2013
  
Sales:
  
   
   
 
Product sales
  
$
9,504
    
$
16,191
    
$
10,411
  
Support sales
    
5,037
      
5,139
      
3,760
  
Total sales
    
14,541
      
21,330
      
14,171
  
Cost of sales:
                        
Product cost of sales, GAAP
    
5,091
      
8,011
      
6,087
  
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
(15
)
    
(26
)
    
(19
)
Amortization of intangibles (2)
    
(262
)
    
(275
)
    
(260
)
Cost reduction efforts (3)
    
(237
)
    
-
      
-
  
Product cost of sales, non-GAAP
    
4,577
      
7,710
      
5,808
  
Support cost of sales, GAAP
    
1,066
      
957
      
715
  
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
(82
)
    
(79
)
    
(93
)
Support cost of sales, non-GAAP
    
984
      
878
      
622
  
Total cost of sales, non-GAAP
    
5,561
      
8,588
      
6,430
  
Gross profit, non-GAAP
    
8,980
      
12,742
      
7,741
  
 
    
61.8
%
    
59.7
%
    
54.6
%
Operating expenses:
                        
Research and development
    
4,548
      
5,016
      
4,401
  
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
(388
)
    
(292
)
    
(500
)
Cost reduction efforts (3)
    
(206
)
    
-
      
-
  
Deferred compensation (4)
    
(65
)
    
(753
)
    
(688
)
Research and development, non-GAAP
    
3,889
      
3,971
      
3,213
  
 
                        
Sales and marketing
    
6,877
      
7,959
      
6,621
  
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
(408
)
    
(334
)
    
(587
)
Amortization of intangibles (2)
    
(113
)
    
(119
)
    
(112
)
Cost reduction efforts (3)
    
(74
)
    
-
      
-
  
Deferred compensation (4)
    
-
      
(777
)
    
(654
)
 
                        
Sales and marketing, non-GAAP
    
6,282
      
6,729
      
5,268
  
 
                        
General and administrative
    
3,110
      
2,537
      
3,637
  
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
(420
)
    
(512
)
    
(399
)
Cost reduction efforts (3)
    
(27
)
    
-
      
-
  
Business development expenses (5)
    
-
      
-
      
(1,002
)
General and administrative, non-GAAP
    
2,663
      
2,025
      
2,236
  
Total operating expenses, non-GAAP
    
12,834
      
12,725
      
10,717
  
 
                        
Income (loss) from operations, non-GAAP
    
(3,854
)
    
17
      
(2,976
)
 
                        
Interest and other income (expense), net
    
28
      
359
      
(50
)
 
                        
Income (loss) before income taxes, non-GAAP
    
(3,826
)
    
376
      
(3,026
)
 
                        
Income tax provision (benefit)
    
(147
)
    
511
      
(623
)
Non-GAAP adjustments (6)
    
179
      
(142
)
    
726
  
Income tax provision (benefit), non-GAAP
    
32
      
369
      
103
  
Net income (loss), non-GAAP
  
$
(3,858
)
  
$
7
    
$
(3,129
)
 
                        
Net income (loss) per share - diluted, non-GAAP
  
$
(0.19
)
  
$
0.00
    
$
(0.16
)
 
                        
Shares used in computing diluted net income (loss) per share
    
20,329
      
20,144
      
19,931
  
 
                        
Reconciliation of Net Income (Loss):
                        
U.S. GAAP as reported
  
$
(5,976
)
  
$
(3,302
)
  
$
(6,717
)
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
1,313
      
1,243
      
1,598
  
Amortization of intangibles (2)
    
375
      
394
      
372
  
Cost reduction efforts (3)
    
544
      
-
      
-
  
Deferred compensation (4)
    
65
      
1,530
      
1,342
  
Business development expenses (5)
    
-
      
-
      
1,002
  
Income tax adjustment (6)
    
(179
)
    
142
      
(726
)
As Adjusted
  
$
(3,858
)
  
$
7
    
$
(3,129
)
 
            
-
          
Reconciliation of Diluted Net Income (Loss) Per Share:
                        
U.S. GAAP as reported
  
$
(0.29
)
  
$
(0.16
)
  
$
(0.34
)
Non-GAAP adjustments:
                        
Stock-based compensation (1)
    
0.06
      
0.06
      
0.08
  
Amortization of intangibles (2)
    
0.02
      
0.02
      
0.02
  
Cost reduction efforts (3)
    
0.03
      
-
      
-
  
Deferred compensation (4)
    
0.00
      
0.08
      
0.07
  
Business development expenses (5)
    
-
      
-
      
0.05
  
Income tax adjustment (6)
    
(0.01
)
    
0.01
      
(0.04
)
As Adjusted
  
$
(0.19
)
  
$
0.00
    
$
(0.16
)
 
                        
Shares used in computing diluted net income (loss) per share
    
20,329
      
20,144
      
19,931
  

(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.
 
 

PROCERA NETWORKS, INC. Reports