Barracuda Barracuda Reports Third Quarter Fiscal 2018 Results

Posted date: 2018-01-08 4:15 PM

- Q3 total revenue grew to $94.7 million
- Q3 GAAP earnings per share of $0.14, and non-GAAP earnings per share of $0.21
- Total active subscribers increased 16% year-over-year to over 360,000

CAMPBELL, Calif., Jan. 8, 2018 /PRNewswire/ -- Barracuda Networks, Inc. (NYSE: CUDA), a leading provider of cloud-enabled security and data protection solutions, today announced results for its third quarter fiscal 2018, that ended November 30, 2017.

Barracuda Logo. (PRNewsFoto/Barracuda Networks, Inc.)

"We delivered a strong third quarter driven by continued momentum in our core focus areas," said BJ Jenkins, president and CEO. "As we announced in November, we entered into a definitive agreement to be acquired by leading private equity investment firm Thoma Bravo, LLC in an all-cash transaction valued at $27.55 per share, or approximately $1.6 billion. The proposed transaction is expected to close before our fiscal year end of February 28, 2018."

Third Quarter Fiscal 2018 Financial Summary

  • Total revenue increased 7% to $94.7 million, compared with $88.8 million in the third quarter of fiscal 2017. Subscription revenue grew to $77.3 million, up 13% from $68.3 million in the third quarter of fiscal 2017, representing 82% of total revenue, and appliance revenue was $17.5 million, compared with $20.5 million in the third quarter of fiscal 2017.
  • Gross billings were $110.6 million, compared with $100.4 million in the third quarter of fiscal 2017. Billings for core products increased 24% to $76.6 million, compared with $61.6 million in the third quarter of fiscal 2017. Excluding Sonian, which Barracuda acquired during the quarter, billings for core products increased 22% to $75.5 million. The number of active subscribers grew 16% to over 360,000 as of November 30, 2017. The annualized renewal rate from subscriptions on a dollar basis was 101%.
  • GAAP net income was $7.8 million, or $0.14 per share, based on a diluted share count of 55.0 million, compared to a GAAP net income of $1.8 million, or $0.03 per share, in the third quarter of fiscal 2017.
  • Non-GAAP net income was $11.6 million, or $0.21 per share, based on a diluted share count of 55.0 million. Non-GAAP net income excludes $9.3 million in stock-based compensation expense, $0.4 million in income tax benefits, $1.6 million in amortization of intangibles, $7.7 million in other net income that includes a gain of $7.4 million from the sale of the SignNow business and $0.9 million in acquisition and other benefits.

The reconciliation between non-GAAP and their most closely comparable GAAP equivalent is contained in the tables below. Barracuda will not hold an earnings conference call or provide financial guidance.

Forward-Looking Statements
This announcement contains forward-looking statements related to our pending acquisition by Thoma Bravo, LLC and the potential timing of the acquisition.  The company undertakes no obligation to update the forward-looking information in this release. More information about potential factors that could affect our business and financial results is included in our filings with the Securities and Exchange Commission, including, without limitation, under the captions: "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors," which are on file with the Securities and Exchange Commission.

Non-GAAP Financial Measures
Barracuda provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement our consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income, non-GAAP operating income, non-GAAP gross margins, non-GAAP operating expenses, adjusted EBITDA and free cash flow. In preparing our non-GAAP information, we have excluded certain amounts as set forth in the attached financial tables and footnotes. We believe that excluding these items provides both management and investors with additional insight into our current operations and the trends affecting the company. In particular, management finds it useful to exclude these items in order to more readily correlate the company's operating activities with the company's ability to generate cash from operations. Accordingly, management uses these non-GAAP measures, along with the comparable GAAP information, in evaluating our historical performance and in planning our future business activities. Please note that our non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information we present should be considered in conjunction with, and not as a substitute for, our financial information presented in accordance with GAAP. We have provided reconciliations of these non-GAAP measures to their comparable GAAP measures for the periods presented in this release, which exclude certain amounts as set forth in the attached financial tables and footnotes for these periods. These measures should only be used to evaluate the company's results of operations in conjunction with the corresponding GAAP measures for comparable financial information and understanding of the company's ongoing performance as a business. Barracuda uses both GAAP and non-GAAP measures to evaluate and manage its operations.

Beginning in the third quarter of fiscal 2017, we modified our reporting practices and our historical presentation of adjusted EBITDA and free cash flow. We no longer adjust for changes in deferred revenue and associated deferred costs in our calculation of adjusted EBITDA, and for free cash flow we will not adjust for the cash payment impact of acquisition and other charges. Prior period information has been recast to conform to the adjusted calculations.

About Barracuda Networks, Inc. (NYSE: CUDA)
Barracuda (NYSE: CUDA) simplifies IT with cloud-enabled solutions that empower customers to protect their networks, applications and data, regardless of where they reside. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployment configurations. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data protection. For additional information, please visit barracuda.com.

Barracuda Networks, Barracuda, and the Barracuda Networks logo are registered trademarks of Barracuda Networks, Inc. in the US and other countries.

Contacts:
Investor Relations: Maria Riley; +1 415-217-7722; ir@barracuda.com
Corporate Communications: Mary Catherine Petermann; +1 404-307-6290; mc@barracuda.com

Barracuda Networks, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)



As of November
30, 2017 (1)


As of February
28, 2017

Assets




Current assets:




Cash and cash equivalents

$

96,894



$

120,194


Marketable securities

80,850



79,915


Accounts receivable, net of allowance for doubtful accounts

45,229



40,560


Inventories, net

8,259



5,847


Deferred costs

34,352



32,598


Other current assets

10,208



16,295


Total current assets

275,792



295,409


Property and equipment, net

30,824



29,979


Deferred costs, non-current

30,502



27,285


Deferred income taxes, non-current

704



1,554


Other non-current assets

21,646



8,607


Intangible assets, net

52,111



32,145


Goodwill

98,135



69,795


Total assets

$

509,714



$

464,774


Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

11,243



$

11,439


Accrued payroll and related benefits

12,803



13,593


Other accrued liabilities

19,089



12,942


Deferred revenue

247,330



239,796


Note payable



4,115


Total current liabilities

290,465



281,885


Long-term liabilities:




Deferred revenue, non-current

170,415



167,286


Deferred income taxes, non-current

3,293



2,803


Other long-term liabilities

7,394



6,377


Stockholders' equity:




Common stock

54



53


Additional paid-in capital

393,048



370,745


Accumulated other comprehensive loss

(3,199)



(5,226)


Accumulated deficit

(351,756)



(359,149)


Total stockholders' equity

38,147



6,423


Total liabilities and stockholders' equity

$

509,714



$

464,774



______________________



(1)

As of March 1, 2017, we adopted ASU 2016-09 which allowed for an accounting policy election to either estimate the number of share-based awards that are expected to vest or account for forfeitures when they occur. We elected to account for forfeitures when they occur and adopted this change on a modified retrospective basis. As a result, we recorded the cumulative effect of the change as a $0.4 million increase to the March 1, 2017 opening accumulated deficit balance on the condensed consolidated balance sheets.

 

Barracuda Networks, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share information)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

Revenue:








Appliance

$

17,459



$

20,457



$

56,071



$

62,824


Subscription

77,288



68,349



227,180



200,566


Total revenue

94,747



88,806



283,251



263,390


Cost of revenue

22,098



21,098



70,944



61,579


Gross profit

72,649



67,708



212,307



201,811


Operating expenses:








Research and development

20,616



18,627



59,412



56,280


Sales and marketing

34,988



33,368



109,769



96,842


General and administrative

12,366



10,217



33,648



31,958


Total operating expenses

67,970



62,212



202,829



185,080


Income from operations

4,679



5,496



9,478



16,731


Other income, net

7,714



(2,374)



10,022



131


Income before income taxes

12,393



3,122



19,500



16,862


Provision for income taxes

(4,610)



(1,329)



(7,491)



(9,848)


Net income

$

7,783



$

1,793



$

12,009



$

7,014


Net income per share:








Basic

$

0.15



$

0.03



$

0.23



$

0.13


Diluted

$

0.14



$

0.03



$

0.22



$

0.13


Weighted-average shares used to compute net income per share:








Basic

53,378



52,457



53,098



52,336


Diluted

54,995



53,995



54,645



53,391


 

Barracuda Networks, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016 (2)


2017


2016 (2)

Operating activities








Net income

$

7,783



$

1,793



$

12,009



$

7,014


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation, amortization and impairment expense

4,171



3,975



12,716



12,442


Stock-based compensation expense

9,332



9,217



26,343



25,050


Excess tax benefits from equity compensation plans (1)



(1,232)





(2,023)


Deferred income taxes

354



(83)



1,158



391


Gain on sale of business

(7,382)





(7,382)




Other

349



173



88



(555)


Changes in operating assets and liabilities:








Accounts receivable, net

(1,213)



(5,786)



(1,531)



(3,054)


Inventories, net

(1,741)



1,014



(2,485)



931


Income taxes, net

2,472



(460)



10,594



3,138


Deferred costs

(556)



227



(5,294)



567


Other assets

(1,362)



106



(6,389)



(469)


Accounts payable

2,980



1,790



(63)



(4,889)


Accrued payroll and related benefits

1,270



(228)



629



898


Other liabilities

2,438



116



1,957



(646)


Deferred revenue

4,810



4,460



12,565



8,916


Net cash provided by operating activities

23,705



15,082



54,915



47,711


Investing activities








Purchases of marketable securities

(11,041)



(37,784)



(32,810)



(59,561)


Proceeds from the sale of marketable securities

8,570



1,236



20,820



11,530


Proceeds from the maturity of marketable securities

2,685



5,572



11,027



13,590


Purchases of non-marketable investments

(56)





(4,056)



(636)


Purchases of property and equipment

(1,329)



(1,296)



(9,145)



(4,265)


Purchases of intangible assets



(374)





(1,374)


Business combinations, net of cash acquired

(51,162)





(51,668)



(243)


Sale of business

2,000





2,000




Payment for the sale of net liabilities





(800)




Net cash used in investing activities

(50,333)



(32,646)



(64,632)



(40,959)


Financing activities








Proceeds from issuance of common stock

1,353



2,556



4,362



7,425


Taxes paid related to net share settlement of equity awards

(3,349)



(3,459)



(7,823)



(6,003)


Repurchases of common stock





(6,546)



(7,241)


Excess tax benefits from equity compensation plans (1)



1,232





2,023


Repayment of employee loans, net of loans extended

(53)



(120)



(23)



(122)


Repayment of note payable



(67)



(4,115)



(200)


Payments of acquisition-related liabilities





(742)




Net cash provided by (used in) financing activities

(2,049)



142



(14,887)



(4,118)


Effect of exchange rate changes

2



(638)



1,337



(175)


Net increase (decrease) in cash, cash equivalents and restricted cash

(28,675)



(18,060)



(23,267)



2,459


Cash, cash equivalents and restricted cash at beginning of period

126,245



139,173



120,837



118,654


Cash, cash equivalents and restricted cash at end of period

$

97,570



$

121,113



$

97,570



$

121,113



 ______________________



(1)

As of March 1, 2017, we adopted ASU 2016-09 which required any excess tax benefits to be classified as an operating activity. Prior to the new standard, we were required to present excess tax benefits as a cash inflow from financing activities with a corresponding cash outflow from operating activities. We elected to apply the amendment related to the presentation of excess tax benefits on the statements of cash flows prospectively, while the prior period presented has not been adjusted.



(2)

We early adopted ASU 2016-18 which requires that a statement of cash flows explain the change during the period for the total of cash, cash equivalents and restricted cash. Therefore, restricted cash has been included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented and has been applied retrospectively to the prior period presented. Net cash flows for the three and nine months ended November 30, 2016 did not significantly change as a result.

 

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

GAAP cost of revenue

$

22,098



$

21,098



$

70,944



$

61,579


Amortization of intangible assets (1)

1,105



1,219



3,546



3,752


Depreciation expense (2)

1,869



1,467



5,375



4,644


Stock-based compensation expense (3)

550



323



1,472



959


Acquisition and other charges (4)

(865)





(18)




Non-GAAP cost of revenue

$

19,439



$

18,089



$

60,569



$

52,224


GAAP sales and marketing expense

$

34,988



$

33,368



$

109,769



$

96,842


Amortization of intangible assets (1)

491



536



1,503



1,735


Depreciation expense (2)

91



74



250



182


Stock-based compensation expense (3)

2,426



2,211



7,960



6,002


Non-GAAP sales and marketing expense

$

31,980



$

30,547



$

100,056



$

88,923


GAAP research and development expense

$

20,616



$

18,627



$

59,412



$

56,280


Depreciation expense (2)

122



126



427



417


Stock-based compensation expense (3)

4,272



3,737



10,081



8,809


Acquisition and other charges (4)





(160)



217


Non-GAAP research and development expense

$

16,222



$

14,764



$

49,064



$

46,837


GAAP general and administrative expense

$

12,366



$

10,217



$

33,648



$

31,958


Depreciation expense (2)

495



553



1,615



1,712


Stock-based compensation expense (3)

2,083



2,946



6,830



9,280


Acquisition and other charges (4)

1,746



166



2,833



750


Non-GAAP general and administrative expense

$

8,042



$

6,552



$

22,370



$

20,216


GAAP total expense

$

90,068



$

83,310



$

273,773



$

246,659


Amortization of intangible assets (1)

1,596



1,755



5,049



5,487


Depreciation expense (2)

2,577



2,220



7,667



6,955


Stock-based compensation expense (3)

9,331



9,217



26,343



25,050


Acquisition and other charges (4)

881



166



2,655



967


Non-GAAP total expense

$

75,683



$

69,952



$

232,059



$

208,200


Depreciation expense (2)

2,577



2,220



7,667



6,955


Non-GAAP total expense including depreciation

$

78,260



$

72,172



$

239,726



$

215,155


 

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands, except per share information)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

GAAP operating income

$

4,679



$

5,496



$

9,478



$

16,731


Amortization of intangible assets (1)

1,596



1,755



5,049



5,487


Stock-based compensation expense (3)

9,331



9,217



26,343



25,050


Acquisition and other charges (4)

881



166



2,655



967


Non-GAAP operating income

$

16,487



$

16,634



$

43,525



$

48,235


GAAP net income

$

7,783



$

1,793



$

12,009



$

7,014


Amortization of intangible assets (1)

1,596



1,755



5,049



5,487


Stock-based compensation expense (3)

9,331



9,217



26,343



25,050


Acquisition and other charges (4)

881



166



2,655



967


Income tax effect on non-GAAP exclusions (5)

(353)



(3,662)



(5,663)



(4,633)


Other income adjustments (6)

(7,658)



2,378



(9,702)



(96)


Non-GAAP net income

$

11,580



$

11,647



$

30,691



$

33,789


Non-GAAP diluted earnings per share (7)

$

0.21



$

0.22



$

0.56



$

0.63


Weighted-average shares used to compute diluted earnings per share

54,995



53,995



54,645



53,391



 ______________________



(1)

Amortization of Intangible Assets. We provide non-GAAP information which excludes expenses for the amortization of intangible assets, as well as certain losses on disposal and impairment of such assets that primarily relate to purchased intangible assets associated with our acquisitions. We believe that eliminating this expense from our non-GAAP measures is useful to investors because the amortization of intangible assets can be inconsistent in amount and frequency and is significantly impacted by the timing and magnitude of our acquisition transactions, which also vary in frequency from period to period. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.



(2)

Depreciation Expense. We provide non-GAAP information which excludes depreciation expense related to the amortization of property and equipment, as well as certain losses from disposal of such assets. We believe that eliminating this expense from our non-GAAP measures is useful to investors because the acquisition of property and equipment, and the corresponding depreciation expense, can be inconsistent in amount and can vary from period to period.



(3)

Stock-Based Compensation Expense. We provide non-GAAP information which excludes expenses for stock-based compensation. We believe the exclusion of stock-based compensation expense allows for financial results that are more indicative of our continuing operations. We also believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies, subjective assumptions and the variety of award types.



(4)

Acquisition and Other Charges. We exclude certain expense items resulting from acquisitions and other charges, which we believe are non-recurring, infrequent, and/or unusual in nature, can vary significantly in amount and frequency, and are unrelated to our ongoing operating performance. We believe that adjusting for these charges allows us to better compare results from period to period in order to assess the ongoing operating results of our business. The charges include: (i) acquisition-related expenses for legal, accounting, and other professional fees, integration costs, fair value remeasurements of contingent consideration obligations and contingent consideration payments made under the terms of acquisition agreements, and (ii) other costs, losses and gains that are non-recurring, infrequent, and/or unusual in nature, such as expenses incurred in connection with litigation, export compliance, intellectual property settlement, indirect tax costs, and other matters, as well as a gain resulting from the disposition of net liabilities related to our CudaCam product offerings.



(5)

Income Tax Effect of Non-GAAP Exclusions. We believe providing financial information with and without the income tax effect of excluding items related to our non-GAAP financial measures provide our management and users of the financial statements with better clarity regarding the ongoing performance and future liquidity of our business. Excluded items include, but are not limited to: (i) amortization expense of intangible assets, (ii) stock-based compensation expense, (iii) acquisition and other charges, and (iv) quarterly changes to the valuation allowance previously established.



(6)

Other Income Adjustments. We provide non-GAAP information that excludes the effect of certain other income and losses. These adjustments may consist of realized gains and losses from the sale of marketable securities, foreign currency remeasurement gains and losses, impairment charges related to non-marketable investments and gains or losses from divestiture of our business unit; specifically, a gain of $7.4 million that resulted from the sale of our SignNow business during the third quarter of fiscal 2018. For all non-functional currency account balances, the remeasurement of such balances to the functional currency will result in either a foreign exchange gain or a loss which is recorded in other income, net. We believe that eliminating these items from our non-GAAP measures is useful to investors, because these items can be inconsistent in amount and can vary from period to period.



(7)

Non-GAAP Diluted Earnings Per Share. We provide non-GAAP diluted earnings per share. Non-GAAP diluted earnings per share is calculated based on our non-GAAP net income divided by the weighted-average diluted shares outstanding for the period.

 

Barracuda Networks, Inc.

Reconciliation of GAAP Net Income to Adjusted EBITDA

(in thousands)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

GAAP net income

$

7,783



$

1,793



$

12,009



$

7,014


Other income, net

(7,714)



2,374



(10,022)



(131)


Provision for income taxes

4,610



1,329



7,491



9,848


Acquisition and other charges

881



166



2,655



967


Stock-based compensation expense

9,331



9,217



26,343



25,050


Amortization of intangible assets

1,596



1,755



5,049



5,487


Depreciation expense

2,577



2,220



7,667



6,955


Adjusted EBITDA (1)

$

19,064



$

18,854



$

51,192



$

55,190



 ______________________



(1)

Adjusted EBITDA. Beginning in the third quarter of fiscal 2017, we modified our reporting practices and our historical presentation of adjusted EBITDA by no longer adjusting for changes in deferred revenue and associated deferred costs. These changes do not impact our current and historical presentation of GAAP results. Prior period information has been recast to conform to the adjusted calculation. We define adjusted EBITDA as net income plus non-cash and non-operating charges which include: (i) other income, net, (ii) provision for income taxes, (iii) acquisition and other charges, (iv) stock-based compensation expense, (v) amortization of intangible assets, including certain losses on disposal and impairment of intangible assets, and (vi) depreciation expense, including certain losses on disposal of fixed assets. We believe adjusted EBITDA provides an indication of profitability from our operations, and provides a consistent measure of our performance from period to period. The other income, net includes a gain of $7.4 million that resulted from the sale of our SignNow business during the third quarter of fiscal 2018

 

Barracuda Networks, Inc.

Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flow

(in thousands)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

GAAP cash flows from operating activities

$

23,705



$

15,082



$

54,915



$

47,711


Purchases of property and equipment

(1,329)



(1,296)



(9,145)



(4,265)


Free cash flow (1)

$

22,376



$

13,786



$

45,770



$

43,446



 ______________________



(1)

Free Cash Flow. Beginning in the third quarter of fiscal 2017, we modified our reporting practices and our historical presentation of adjusted free cash flow by no longer adjusting free cash flow for the cash payment impact of acquisition and other charges. These changes do not impact our current and historical presentation of GAAP results. Prior period information has been recast to conform to the adjusted calculation. We define free cash flow as cash flows from operating activities less the purchases of property and equipment. We believe free cash flow is an important liquidity measure that reflects the cash generated by the business after the purchase of property and equipment that can then be used for, among other things, strategic acquisitions, investments in the business, and funding ongoing operations.

 

Barracuda Networks, Inc.

Reconciliation of GAAP Revenue to Gross Billings

(in thousands)

(Unaudited)



Three Months Ended November 30,


Nine Months Ended November 30,


2017


2016


2017


2016

GAAP Revenue

$

94,747



$

88,806



$

283,251



$

263,390


Total deferred revenue, end of period

417,745



401,300



417,745



401,300


Less: total deferred revenue, beginning of period

(413,665)



(398,878)



(407,082)



(392,774)


Deferred revenue adjustments

11,806



9,171



30,441



26,982


Total change in deferred revenue and adjustments

15,886



11,593



41,104



35,508


Gross billings (1)(2)

$

110,633



$

100,399



$

324,355



$

298,898



 ______________________



(1)

Gross Billings. We define gross billings as total revenue plus the change in deferred revenue and other adjustments, which primarily consist of returns and reserves with respect to the 30-day right of return we provide to customers, as well as rebates for certain channel partner activities. We believe that gross billings provide insight into the sales of our solutions and performance of our business.



(2)

In order to determine how our business performed exclusive of the effect of foreign currency fluctuations, we compare the percentage change in our gross billings from one period to another using a constant currency. To present this gross billings information, the current and comparative prior period results for entities that operate in other than U.S. dollars are converted into U.S. dollars at constant exchange rates. For example, the average exchange rates for the second quarter of fiscal 2018 were used to convert current and comparable prior period gross billings rather than the actual exchange rates in effect during the respective period.

 

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SOURCE Barracuda Networks, Inc.