Procera Networks, Inc. (NYSE Amex: PKT), the Intelligent Policy
Enforcement (IPE) company, today reported financial results for its
fourth quarter and year ended December 31, 2010.
Fourth Quarter and 2010 Highlights
- Bookings for the fourth quarter were approximately $9
million
- Revenue for 2010 was $20.3 million, up 1% compared to 2009, and
fourth quarter revenue was $7.5 million, down 20% from the fourth
quarter of 2009
- Gross margin for 2010 was 57%, up 16 percentage points from 41%
in 2009, and fourth quarter gross margin was 58%, up 8 percentage
points from 50% in the fourth quarter of 2009
- Achieved GAAP profitability in the fourth quarter of 2010
- Net working capital increased to $12.6 million at December 31,
2010, up 73% from $7.3 million in 2009
- Signed and received initial orders from two new Tier-1 service
providers in the fourth quarter, bringing the total to seven new
Tier-1 wins in 2010 reflecting a balance between cable and mobile
operators
- 14 direct Tier-1 trials ongoing or planned over the next 90
days and additional trials with partners
- Received over $1 million in follow-on orders from existing
Tier-1 customers in the fourth quarter
- Generated over $1 million in initial orders through OEM
partner, following the Company's partnership agreement in July
2010
- Continued strong momentum in higher education with over 40 new
customer wins in the fourth quarter, bringing the total to over 125
new higher education customers in 2010
Growth Outlook for 2011
- The annual revenue guidance for 2011 is $30 million,
representing growth of 50% year-over-year
"We believe the significant progress we made in 2010 has set the
stage for Procera to deliver significant growth in 2011," said
James Brear, president and CEO of Procera Networks. "We expect that
our growth in 2011 will come from new trial wins and initial orders
from ongoing or planned Tier-1 trials, as well as follow-on orders
from our 13 Tier-1 service provider customers, seven of which were
signed in 2010. We also anticipate growth as a result of our
recently announced technology partnership and the significant OEM
partnership we successfully signed and launched in the second half
of 2010, which generated over $1 million in initial orders in the
fourth quarter.
"Our continued penetration into the higher education market will
also drive growth in 2011. We have seen very favorable response
from both our higher education customers and our Tier-1 service
provider customers to the cost and performance of our PacketLogic
PL 8720.
"We are excited about the significant progress we have made in
positioning our business for growth. Our success in signing on
seven new Tier-1 service providers and adding a significant OEM
partner in 2010, along with our recently announced technology
alliance and continued product innovation, underscore our
commitment to becoming a leader in the growing Deep Packet
Inspection and policy enforcement markets," concluded Mr.
Brear.
Fourth Quarter and 2010 Financial Results
Revenue for the fourth quarter of 2010 was $7.5 million, up 60%
sequentially compared to revenue of $4.7 million in the third
quarter of 2010, and down 20% compared to revenue of $9.4 million
in the fourth quarter of 2009. Revenue for 2010 was $20.3 million,
up 1% compared to revenue of $20.1 million in 2009.
GAAP net income for the fourth quarter of 2010 was $182,000, or
$0.02 per share, compared to net income of $877,000, or $0.09 per
share, in the fourth quarter of 2009. GAAP net loss for 2010 was
$2.9 million, or $0.27 per share, compared to net loss of $7.4
million, or a loss of $0.82 per share, in 2009.
Non-GAAP net income for the fourth quarter of 2010 was $600,000,
compared to non-GAAP net income of $1.1 million in the fourth
quarter of 2009. Non-GAAP net loss for 2010 was $1.5 million,
compared to non-GAAP net loss of $2.8 million for 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 8:30 a.m. Eastern
Time today to discuss its financial results for the fourth quarter
and year ended December 31, 2010. Interested parties can access the
live call by dialing 877-941-8416 or 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 Friday, March 18, 2011, by dialing
800-406-7325 and entering the replay code of 4420776#. 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.
Safe Harbor Statement This press release
contains forward-looking statements, including statements relating
to expectations for revenue growth in 2011, our ability to win new
business, the potential for new Tier 1 customers to become
significant customers, potential benefits from partnerships and
alliances, including our OEM agreement with GENBAND, obtaining
follow-on orders from new and existing customers, and the expected
demand for Procera Networks' products and services. 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 Intelligent Policy Enforcement (IPE)
solutions, leveraging advanced Deep Packet Inspection (DPI)
technology. This enables carriers, services providers and higher
education institutions to improve the quality and lifetime of their
networks, better monetize their infrastructure investments, control
hazards, and create attractive services for their users by making
qualified business decisions based on granular user and traffic
intelligence. Procera's core product suite, the PacketLogic line of
platforms, is an engine that drives the PCC (Policy and Charging
Control) ecosystem, by enforcing advanced network and service
policies. PacketLogic is deployed at more than 600 customers who
value the unparalleled accuracy and high-end performance of the
PacketLogic solution. Founded in 2002, Procera (NYSE Amex: PKT) is
based in Silicon Valley and has offices around the globe. More
information is available at www.proceranetworks.com.
Procera Networks, Inc.
Condensed Consolidated Statements of Operations
Unaudited
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Sales
Product sales $ 6,236,571 $ 8,500,330 $15,824,947 $17,009,423
Support sales 1,281,517 863,977 4,498,285 3,119,421
----------- ----------- ----------- -----------
Total sales 7,518,088 9,364,307 20,323,232 20,128,844
Cost of sales
Product cost of sales 3,046,366 4,521,168 8,312,770 11,430,349
Support cost of sales 107,465 184,314 500,275 514,503
----------- ----------- ----------- -----------
Total cost of sales 3,153,831 4,705,482 8,813,045 11,944,852
----------- ----------- ----------- -----------
Gross profit 4,364,257 4,658,825 11,510,187 8,183,992
----------- ----------- ----------- -----------
58.1% 49.8% 56.6% 40.7%
Operating expenses:
Research and
development 1,033,542 704,664 3,304,650 2,607,851
Sales and marketing 2,023,318 1,859,461 6,855,203 6,820,543
General and
administrative 1,086,805 1,185,196 4,086,908 4,992,538
----------- ----------- ----------- -----------
Total operating
expenses 4,143,665 3,749,321 14,246,761 14,420,932
----------- ----------- ----------- -----------
Income (loss) from
operations 220,592 909,504 (2,736,574) (6,236,940)
----------- ----------- ----------- -----------
Interest and other
income (expense), net (31,516) (32,088) (147,405) (1,838,790)
----------- ----------- ----------- -----------
Income (loss) before
income taxes 189,076 877,416 (2,883,979) (8,075,730)
Income tax provision
(benefit) 6,750 - 9,729 (691,450)
----------- ----------- ----------- -----------
Net income (loss) $ 182,326 $ 877,416 $(2,893,708) $(7,384,280)
=========== =========== =========== ===========
Net income (loss) per
share - basic $ 0.02 $ 0.09 $ (0.27) $ (0.82)
=========== =========== =========== ===========
Net income (loss) per
share - diluted $ 0.02 $ 0.09 $ (0.27) $ (0.82)
=========== =========== =========== ===========
Shares used in computing
net income (loss) per
share*:
Basic 11,210,956 9,408,224 10,898,228 8,988,587
Diluted 11,270,054 9,436,686 10,898,228 8,988,587
* Shares used in per share calculations reflect a 1-for-10 reverse stock
split effected by the Company on February 4, 2011.
Procera Networks, Inc.
Condensed Consolidated Balance Sheets
December 31, December 31,
2010 2009
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,875,798 $ 3,191,896
Accounts receivable, net of allowance 11,407,220 8,908,620
Inventories, net 2,549,695 1,877,264
Prepaid expenses and other 831,737 692,007
------------ ------------
Total current assets 22,664,450 14,669,787
Property and equipment, net 873,173 589,717
Goodwill 960,209 960,209
Other non-current assets 19,150 103,307
------------ ------------
Total assets $ 24,516,982 $ 16,323,020
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,718,732 $ 1,917,088
Accounts payable 1,943,799 1,003,225
Deferred revenue 3,732,756 1,680,581
Accrued liabilities 2,662,564 2,255,039
Notes payable - 500,000
------------ ------------
Total current liabilities 10,057,851 7,355,933
Non-current liabilities
Deferred revenue 704,735 422,479
Deferred rent - 29,371
------------ ------------
Total liabilities 10,762,586 7,807,783
Commitments and contingencies - -
Stockholders' equity:
Common stock 11,315 9,408
Additional paid-in capital 76,093,272 67,898,878
Accumulated other comprehensive loss (331,883) (268,449)
Accumulated deficit (62,018,308) (59,124,600)
------------ ------------
Total stockholders' equity 13,754,396 8,515,237
------------ ------------
Total liabilities and stockholders' equity $ 24,516,982 $ 16,323,020
============ ============
Procera Networks, Inc.
GAAP to Non-GAAP Reconciliation; and Supplemental Financial Information
Unaudited
Three Months Ended Twelve Months Ended
------------------------------- ----------------------
December September December December December
31, 2010 30, 2010 31, 2009 31, 2010 31, 2009
--------- --------- --------- ---------- ----------
Sales - U.S. GAAP
as reported 7,518,088 4,734,777 9,364,307 20,323,232 20,128,844
Reconciliation of
Gross Profit:
U.S. GAAP as
reported 4,364,257 2,711,803 4,658,825 11,510,187 8,183,992
As a percentage
of sales 58.1% 57.3% 49.8% 56.6% 40.7%
Adjustment:
Amortization on
intangibles(1) - - - - 1,017,333
Stock-based
compensation(2) 24,671 19,948 20,362 88,469 70,759
--------- --------- --------- ---------- ----------
As Adjusted 4,388,928 2,731,751 4,679,187 11,598,656 9,272,084
As a percentage
of sales 58.4% 57.7% 50.0% 57.1% 46.1%
Reconciliation of
Operating Expense:
U.S. GAAP as
reported 4,143,665 3,408,614 3,749,321 14,246,761 14,420,932
Adjustment:
Amortization on
intangibles(1) - - - - 1,461,240
Stock-based
compensation(2) 393,001 336,676 250,643 1,325,713 1,086,198
--------- --------- --------- ---------- ----------
As Adjusted 3,750,664 3,071,938 3,498,678 12,921,048 11,873,494
Reconciliation of
Net Income (Loss):
U.S. GAAP as
reported 182,326 (738,972) 877,416 (2,893,708) (7,384,280)
Adjustment:
Amortization on
intangibles(1) - - - - 2,478,573
Stock-based
compensation(2) 417,672 356,624 271,005 1,414,182 1,156,957
Interest
related to
beneficial
conversion
feature(3) - - - - 1,644,756
Income tax
adjustment(4) - - - - (696,495)
--------- --------- --------- ---------- ----------
As Adjusted 599,998 (382,348) 1,148,421 (1,479,526) (2,800,489)
========= ========= ========= ========== ==========
(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 Diana Loredo Procera Networks 408-890-7039
diana.loredo@proceranetworks.com Investor Relations Contact
Charles Messman or Todd Kehrli MKR Group Inc. 323-468-2300
pkt@mkr-group.com
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