Procera Networks Management Discusses Q2 2012 Results - Earnings Call Transcript

Procera Networks (PKT)

Q2 2012 Earnings Call

August 02, 2012 4:30 pm ET

Executives

Todd Kehrli - Co-founder and Executive Vice President

James F. Brear - Chief Executive Officer, President and Director

Charles Constanti - Chief Financial Officer, Principal Accounting Officer, Vice President, Secretary and Treasurer

Analysts

Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc., Research Division

Jason Ader - William Blair & Company L.L.C., Research Division

Alex Kurtz - Sterne Agee & Leach Inc., Research Division

Victor Chiu

Daniel T. Cummins - ThinkEquity LLC, Research Division

Catharine Anne Trebnick - Northland Capital Markets, Research Division

Brent A. Bracelin - Pacific Crest Securities, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Procera Networks Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, August 2, 2012. And I'd now like to turn the conference over to Todd Kehrli of the MKR Group. Please go ahead.

Todd Kehrli

Thank you, operator. Good afternoon, and welcome to Procera Networks' Second Quarter 2012 Financial Results Conference Call. On the call today from Procera are Jim Brear, Chief Executive Officer; and Charles Constanti, Chief Financial Officer.

Before we begin, let me note that the information about to be discussed contains forward-looking statements, including statements relating to the expected demand for Procera's products and Procera's expectations for growth in 2012. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause the actual results to differ materially from those expressed or implied by such forward-looking statements. These risk factors include risks related to the acceptance and adoption of Procera's products; the company's ability to service and update its products; lengthy sales cycles and lab and field trial delays by service providers; the company's dependence on a limited product line or dependence on key employees; its ability to compete in its industry with companies that are significantly larger and have greater resources; its ability to protect its intellectual property rights in the global market; its ability to manufacture product quickly enough to meet potential demand; and other risks and uncertainties described fully in the company's documents filed with, or furnished to, the Securities and Exchange Commission.

More information about these and other risks that may impact its business are set forth in the company's Form 10-Q filed for the first quarter ended March 31, 2012, and Form 10-K, filed for the year ended December 31, 2011. All forward-looking statements in this presentation are based on information available to us as of today, and we assume no obligation to update these forward-looking statements.

I'll turn the call over to Procera's CEO, Jim Brear. Go ahead, Jim.

James F. Brear

.

Thanks, and welcome, everyone. We are pleased to report another very strong quarter reflecting consistent execution, continued positive traction across all customer segments and geographies and a steady investment in positioning Procera for continued growth. Revenue for the second quarter was $14.7 million, a 52% increase over Q2 of last year, while revenue for the first 6 months was $27 million, a 63% increase year-over-year. For Q2, we were profitable and generated $2.4 million of cash from operations.

Our strong performance reflects the increased demand for our products across all our customer segments, including wireless, wireline and cable. With our realtime subscriber-aware traffic analysis and reporting capabilities, service providers are able to improve their subscriber satisfaction, while using detailed analytics to generate additional revenue opportunities via personalized service plans.

Our revenue in the second quarter was spread across all service provider segments, with 40% fixed line, 34% cable, 14% wireless and 12% higher education and enterprise. We had 16 new service provider wins during the quarter, including 3 cable, 5 fixed and 8 mobile. These included 1 new cable Tier-1 customer and 2 new fixed mobile Tier-1 customers in Asia and Western Europe.

As we announced last week, we were selected by a large U.S. Fixed Line service provider who recently deployed more than 100 of our PacketLogic Intelligent Policy Enforcement systems across their network, fully replacing a competing solution. The initial order was worth over $4 million. This service provider selected Procera for detailed analytics and reporting capabilities, as well as the option to deploy carrier-grade NAP as its network expands and it experiences IPv4 for address shortages.

Service providers across all segments are recognizing the value of our systems to improve the quality and longevity of their networks, while better monetizing their network infrastructure investments by creating new personalized services for their subscribers.

During the second quarter, we continued to expand our business within all of our customer base, receiving 23 follow-on orders, including 12 fixed, 5 cable and 6 mobile operators. These follow-on orders represented about 50% of second quarter revenue and included 7 follow-on orders from existing Tier-1 customers. We continue to expect about 50% of our total revenue in 2012 to come from follow-on orders and 50% to come from new business.

We received 27 new higher education orders in the second quarter, with higher education enterprise contributing approximately 12% of our total second quarter revenue. Trial activity remains strong and is balanced across all customer types and regions. We currently have 19 direct trials of Tier-1 service providers that are underway or plan to begin over the next 60 days. As we've previously discussed, we continue to be actively involved with a number of large mega carriers and remain quite optimistic. We're also beginning to see increased activity and interest from our -- for our solution from some of the largest carriers in the U.S. with potential procurement starting in 2013 if our solution is selected.

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