Delaware | 001-36162 | 83-0380411 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Description | |
99.1 | Press release issued by Barracuda Networks, Inc., dated July 10, 2017 |
BARRACUDA NETWORKS, INC. | |||
Date: July 10, 2017 | By: | /s/ Diane C. Honda | |
Diane C. Honda | |||
Senior Vice President, General Counsel & Secretary |
Exhibit No. | Description | |
99.1 | Press release issued by Barracuda Networks, Inc., dated July 10, 2017 |
• | Q1 total revenue grew 9% year-over-year to $94.2 million |
• | Q1 GAAP earnings per share of $0.05, and non-GAAP earnings per share of $0.18 |
• | Total active subscribers exceeded 335,000 |
• | Total revenue increased 9% to $94.2 million, compared with $86.7 million in the first quarter of fiscal 2017. Subscription revenue grew to $73.9 million, up 13% from $65.3 million in the first quarter of fiscal 2017, representing 78% of total revenue, and appliance revenue was $20.3 million, compared with $21.3 million in the first quarter of fiscal 2017. |
• | Gross billings were $105.2 million, compared with $98.2 million in the first quarter of fiscal 2017. Billings for core products increased 20% to $67.1 million, compared with $55.9 million in the first quarter of fiscal 2017. The number of active subscribers grew approximately 17% to over 335,000 as of May 31, 2017. The renewal rate was 90% on a dollar-basis and in constant currency, and 93% on an annualized basis. |
• | GAAP net income was $2.7 million, or $0.05 per share, based on a diluted share count of 54.3 million, compared to a GAAP net income of $2.8 million, or $0.05 per share, in the first quarter of fiscal 2017. |
• | Non-GAAP net income was $10.0 million, or $0.18 per share, based on a diluted share count of 54.3 million. Non-GAAP net income excludes $7.4 million in stock-based compensation expense, $1.8 million in income tax benefits, $1.7 million in amortization of intangibles, $1.0 million in other income and $0.9 million in acquisition and other charges. |
• | Expanded Email Security Suite: Launched Barracuda Sentinel, a new AI solution that prevents spear phishing and cyber fraud in real time. Barracuda Sentinel combines powerful artificial intelligence technology, domain fraud protection using DMARC authentication, and fraud simulation training into a comprehensive solution that guards against spear phishing, impersonation attempts, business email compromise (BEC), and cyber fraud. Barracuda Sentinel is delivered as a cloud service, without any hardware or software to install or maintain. Barracuda Sentinel works alongside existing email security solutions, including native Microsoft Office 365, Barracuda Essentials, or others – and is available today for Microsoft Office 365 users worldwide. For additional information, visit https://www.barracudasentinel.com. |
• | Continued Public Cloud Momentum: Expanded Cloud Ready program to offer organizations a free cloud license for Barracuda Web Application Firewall and Barracuda NextGen Firewall on Amazon Web Services and Microsoft Azure for 90 days. Barracuda's cloud-enabled security suite allows customers to deploy their applications and workloads securely with the same powerful capabilities and intuitive user interfaces whether deployed on-premises or in the cloud. Barracuda offers a variety of flexible pricing options, including bring-your-own-license, pay-as-you-go, and metered billing. |
• | Enhanced MSP Offerings: Introduced two new MSP professional services offerings to complement the MSP editions of the Barracuda NextGen Firewall and the Barracuda Backup Appliance. These new services offer 24/7/365 monitoring and management, enabling MSPs to offer security and data protection to customers, while freeing up and supplementing their MSP team. |
• | Achieved Industry Recognition: Recognized with numerous awards and accolades for technology innovation, channel commitment, and customer service – 2017 Redmond Channel Partner Editor’s Choice Award for Best Security Product for Barracuda NextGen Firewall for Azure; SC Magazine 5-Star Review in the Ransomware Group Test for Barracuda Advanced Threat Protection; Channel Partner Program of the Year and Editor's Choice Vendor Award in the 2017 Storage Awards; 2017 CRN 5-Star Partner Program Achievement for both channel/VAR and MSP partner programs; Best Customer Service in 2017 SC Awards Europe. |
As of May 31, 2017 (1) | As of February 28, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 126,676 | $ | 120,194 | |||
Marketable securities | 80,660 | 79,915 | |||||
Accounts receivable, net of allowance for doubtful accounts | 39,654 | 40,560 | |||||
Inventories, net | 6,443 | 5,847 | |||||
Deferred costs | 33,403 | 32,598 | |||||
Other current assets | 9,374 | 16,295 | |||||
Total current assets | 296,210 | 295,409 | |||||
Property and equipment, net | 32,060 | 29,979 | |||||
Deferred costs, non-current | 28,780 | 27,285 | |||||
Deferred income taxes, non-current | 1,275 | 1,554 | |||||
Other non-current assets | 10,166 | 8,607 | |||||
Intangible assets, net | 30,418 | 32,145 | |||||
Goodwill | 70,199 | 69,795 | |||||
Total assets | $ | 469,108 | $ | 464,774 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 12,524 | $ | 11,439 | |||
Accrued payroll and related benefits | 12,943 | 13,593 | |||||
Other accrued liabilities | 12,314 | 12,942 | |||||
Deferred revenue | 241,464 | 239,796 | |||||
Note payable | 4,044 | 4,115 | |||||
Total current liabilities | 283,289 | 281,885 | |||||
Long-term liabilities: | |||||||
Deferred revenue, non-current | 166,060 | 167,286 | |||||
Deferred income taxes, non-current | 2,938 | 2,803 | |||||
Other long-term liabilities | 6,425 | 6,377 | |||||
Stockholders’ equity: | |||||||
Common stock | 53 | 53 | |||||
Additional paid-in capital | 375,679 | 370,745 | |||||
Accumulated other comprehensive loss | (4,239 | ) | (5,226 | ) | |||
Accumulated deficit | (361,097 | ) | (359,149 | ) | |||
Total stockholders’ equity | 10,396 | 6,423 | |||||
Total liabilities and stockholders’ equity | $ | 469,108 | $ | 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. |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
Revenue: | |||||||
Appliance | $ | 20,265 | $ | 21,333 | |||
Subscription | 73,914 | 65,321 | |||||
Total revenue | 94,179 | 86,654 | |||||
Cost of revenue | 23,648 | 20,241 | |||||
Gross profit | 70,531 | 66,413 | |||||
Operating expenses: | |||||||
Research and development | 19,356 | 19,207 | |||||
Sales and marketing | 36,220 | 31,330 | |||||
General and administrative | 10,944 | 10,772 | |||||
Total operating expenses | 66,520 | 61,309 | |||||
Income from operations | 4,011 | 5,104 | |||||
Other income, net | 1,184 | 990 | |||||
Income before income taxes | 5,195 | 6,094 | |||||
Provision for income taxes | (2,523 | ) | (3,310 | ) | |||
Net income | $ | 2,672 | $ | 2,784 | |||
Net income per share: | |||||||
Basic | $ | 0.05 | $ | 0.05 | |||
Diluted | $ | 0.05 | $ | 0.05 | |||
Weighted-average shares used to compute net income per share: | |||||||
Basic | 52,875 | 52,285 | |||||
Diluted | 54,329 | 52,854 |
Three Months Ended May 31, | |||||||
2017 | 2016 (2) | ||||||
Operating activities | |||||||
Net income | $ | 2,672 | $ | 2,784 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization and impairment expense | 4,216 | 4,281 | |||||
Stock-based compensation expense | 7,383 | 7,937 | |||||
Excess tax benefits from equity compensation plans (1) | — | (141 | ) | ||||
Deferred income taxes | 652 | 261 | |||||
Other | (511 | ) | (225 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | 872 | 1,015 | |||||
Inventories, net | (666 | ) | (363 | ) | |||
Income taxes, net | 9,356 | 1,452 | |||||
Deferred costs | (1,424 | ) | (26 | ) | |||
Other assets | (4,211 | ) | (1,646 | ) | |||
Accounts payable | 1,320 | (3,283 | ) | ||||
Accrued payroll and related benefits | (1,262 | ) | 69 | ||||
Other liabilities | 351 | (255 | ) | ||||
Deferred revenue | 1,461 | 277 | |||||
Net cash provided by operating activities | 20,209 | 12,137 | |||||
Investing activities | |||||||
Purchases of marketable securities | (10,809 | ) | (11,572 | ) | |||
Proceeds from the sale of marketable securities | 4,784 | 5,351 | |||||
Proceeds from the maturity of marketable securities | 5,257 | 3,831 | |||||
Purchases of non-marketable investments | — | (636 | ) | ||||
Purchases of property and equipment | (4,737 | ) | (1,949 | ) | |||
Business combinations, net of cash acquired | (506 | ) | (183 | ) | |||
Payments for the sale of net liabilities | (250 | ) | — | ||||
Net cash used in investing activities | (6,261 | ) | (5,158 | ) | |||
Financing activities | |||||||
Proceeds from issuance of common stock | 1,313 | 3,031 | |||||
Taxes paid related to net share settlement of equity awards | (1,866 | ) | (1,554 | ) | |||
Repurchases of common stock | (6,546 | ) | (280 | ) | |||
Excess tax benefits from equity compensation plans (1) | — | 141 | |||||
Repayment of employee loans, net of loans extended | 30 | (34 | ) | ||||
Repayment of note payable | (71 | ) | (67 | ) | |||
Payments of acquisition-related liabilities | (742 | ) | — | ||||
Net cash provided by (used in) financing activities | (7,882 | ) | 1,237 | ||||
Effect of exchange rate changes | 428 | 135 | |||||
Net increase in cash, cash equivalents and restricted cash | 6,494 | 8,351 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 120,837 | 119,333 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 127,331 | $ | 127,684 |
(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 months ended May 31, 2016 did not significantly change as a result. |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
GAAP cost of revenue | $ | 23,648 | $ | 20,241 | |||
Amortization of intangible assets (1) | 1,221 | 1,276 | |||||
Depreciation expense (2) | 1,681 | 1,612 | |||||
Stock-based compensation expense (3) | 426 | 298 | |||||
Non-GAAP cost of revenue | $ | 20,320 | $ | 17,055 | |||
GAAP sales and marketing expense | $ | 36,220 | $ | 31,330 | |||
Amortization of intangible assets (1) | 506 | 600 | |||||
Depreciation expense (2) | 72 | 53 | |||||
Stock-based compensation expense (3) | 2,134 | 1,848 | |||||
Non-GAAP sales and marketing expense | $ | 33,508 | $ | 28,829 | |||
GAAP research and development expense | $ | 19,356 | $ | 19,207 | |||
Depreciation expense (2) | 165 | 153 | |||||
Stock-based compensation expense (3) | 2,687 | 2,464 | |||||
Acquisition and other charges (4) | (160 | ) | 217 | ||||
Non-GAAP research and development expense | $ | 16,664 | $ | 16,373 | |||
GAAP general and administrative expense | $ | 10,944 | $ | 10,772 | |||
Depreciation expense (2) | 571 | 587 | |||||
Stock-based compensation expense (3) | 2,136 | 3,327 | |||||
Acquisition and other charges (4) | 1,079 | 175 | |||||
Non-GAAP general and administrative expense | $ | 7,158 | $ | 6,683 | |||
GAAP total expense | $ | 90,168 | $ | 81,550 | |||
Amortization of intangible assets (1) | 1,727 | 1,876 | |||||
Depreciation expense (2) | 2,489 | 2,405 | |||||
Stock-based compensation expense (3) | 7,383 | 7,937 | |||||
Acquisition and other charges (4) | 919 | 392 | |||||
Non-GAAP total expense | $ | 77,650 | $ | 68,940 | |||
Depreciation expense (2) | 2,489 | 2,405 | |||||
Non-GAAP total expense including depreciation | $ | 80,139 | $ | 71,345 |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
GAAP operating income | $ | 4,011 | $ | 5,104 | |||
Amortization of intangible assets (1) | 1,727 | 1,876 | |||||
Stock-based compensation expense (3) | 7,383 | 7,937 | |||||
Acquisition and other charges (4) | 919 | 392 | |||||
Non-GAAP operating income | $ | 14,040 | $ | 15,309 | |||
GAAP net income | $ | 2,672 | $ | 2,784 | |||
Amortization of intangible assets (1) | 1,727 | 1,876 | |||||
Stock-based compensation expense (3) | 7,383 | 7,937 | |||||
Acquisition and other charges (4) | 919 | 392 | |||||
Income tax effect on non-GAAP exclusions (5) | (1,754 | ) | (1,287 | ) | |||
Other income adjustments (6) | (966 | ) | (977 | ) | |||
Non-GAAP net income | $ | 9,981 | $ | 10,725 | |||
Non-GAAP diluted earnings per share (7) | $ | 0.18 | $ | 0.20 | |||
Weighted-average shares used to compute diluted earnings per share | 54,329 | 52,854 |
(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 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 and impairment charges related to non-marketable investments. 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. |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
GAAP net income | $ | 2,672 | $ | 2,784 | |||
Other income, net | (1,184 | ) | (990 | ) | |||
Provision for income taxes | 2,523 | 3,310 | |||||
Acquisition and other charges | 919 | 392 | |||||
Stock-based compensation expense | 7,383 | 7,937 | |||||
Amortization of intangible assets | 1,727 | 1,876 | |||||
Depreciation expense | 2,489 | 2,405 | |||||
Adjusted EBITDA (1) | $ | 16,529 | $ | 17,714 |
(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. |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
GAAP cash flows from operating activities | $ | 20,209 | $ | 12,137 | |||
Purchases of property and equipment | (4,737 | ) | (1,949 | ) | |||
Free cash flow (1) | $ | 15,472 | $ | 10,188 |
(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. |
Three Months Ended May 31, | |||||||
2017 | 2016 | ||||||
GAAP Revenue | $ | 94,179 | $ | 86,654 | |||
Total deferred revenue, end of period | 407,524 | 393,072 | |||||
Less: total deferred revenue, beginning of period | (407,082 | ) | (392,774 | ) | |||
Deferred revenue adjustments | 10,603 | 11,249 | |||||
Total change in deferred revenue and adjustments | 11,045 | 11,547 | |||||
Gross billings (1)(2) | $ | 105,224 | $ | 98,201 |
(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 rates in effect at May 31, 2016, which was the last day of our prior fiscal year’s comparable quarter, were used to convert current and comparable prior period gross billings rather than the actual exchange rates in effect during the respective period. |