CARB - Carbonite Announces Third Quarter 2018 Financial Results

November, 01 2018 04:05 PM Carbonite Inc.

59% Business Subscription Bookings Growth and Better-than-Expected Profitability

BOSTON, Nov. 01, 2018 (GLOBE NEWSWIRE) -- Carbonite, Inc. (NASDAQ: CARB), a global leader in data protection, today announced financial results for the quarter ended September 30, 2018.

Third Quarter 2018 Highlights:

Revenue of $77.7 million increased 26% year-over-year.
Non-GAAP revenue of $79.1 million increased 25% year-over-year.¹
Business subscription bookings of $43.9 million increased 59% year-over-year.²
Net income for the third quarter was $0.6 million, compared to net loss of ($3.6) million in the third quarter of 2017.
Net income (loss) per share was $0.02 (basic and diluted), as compared to ($0.13) in 2017 (basic and diluted).
Non-GAAP net income per share was $0.53 (basic) and $0.48 (diluted), as compared to $0.26 (basic) and $0.25 (diluted) in 2017.³
Adjusted EBITDA of $23.0 million, or 29% of non-GAAP revenue, compared to $11.3 million, or 18% of non-GAAP revenue in 2017.⁴

“We continue to deliver strong results across the board while successfully executing against our strategic plan,” said Mohamad Ali, CEO of Carbonite. “With the newly launched Carbonite Data Protection Console and our robust server backup solution that now includes purpose-built protection for virtual machines, our solutions address all of the market's most pressing data protection needs. In addition to our strengthening product portfolio, we are making investments in our partner network to effectively enable our partners to sell the full suite of Carbonite data protection solutions.”

“In Q3 we delivered strong bookings growth, significantly expanded gross margin, and drove a meaningful increase in free cash flow. Our focus on driving total growth and delivering operating efficiencies across the business continues to yield exceptional results,” said Anthony Folger, CFO of Carbonite.

The Company uses a variety of operational and financial metrics, including non-GAAP financial measures, to evaluate its performance and financial condition. The accompanying financial data includes additional information regarding these metrics and a reconciliation of non-GAAP financial information to GAAP. The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Third Quarter 2018 Results:

Revenue for the third quarter was $77.7 million, an increase of 26% from $61.6 million in the third quarter of 2017. Non-GAAP revenue for the third quarter was $79.1 million, an increase of 25% from $63.1 million in the third quarter of 2017.¹
Bookings for the third quarter were $78.8 million, an increase of 32% from $59.7 million in the third quarter of 2017.²
Net income for the third quarter was $0.6 million, compared to net loss of ($3.6) million in the third quarter of 2017. Non-GAAP net income for the third quarter was $17.3 million, compared to non-GAAP net income of $7.3 million in the third quarter of 2017.³
Net income per share for the third quarter was $0.02 (basic and diluted), compared to net loss per share of ($0.13) (basic and diluted) in the third quarter of 2017. Non-GAAP net income per share was $0.53 (basic) and $0.48 (diluted) for the third quarter, compared to non-GAAP net income per share of $0.26 (basic) and $0.25 (diluted) in the third quarter of 2017.³
Adjusted EBITDA for the third quarter was $23.0 million, compared to $11.3 million in the third quarter of 2017.⁴
Gross margin for the third quarter was 71.9%, compared to 71.5% in the third quarter of 2017. Non-GAAP gross margin was 78.4% in the third quarter, compared to 76.3% in the third quarter of 2017.⁵
Cash flow from operations for the third quarter was $17.0 million, compared to $6.9 million in the third quarter of 2017. Adjusted free cash flow for the third quarter was $17.3 million, compared to $6.0 million in the third quarter of 2017.⁶




1

Non-GAAP revenue excludes the impact of purchase accounting adjustments for acquisitions.
2

Bookings represent the aggregate dollar value of customer subscriptions and software arrangements, which may include multiple revenue elements, such as software licenses, hardware, professional services and post-contractual support, received during a period and are calculated as revenue recognized during a particular period plus the change in total deferred revenue, excluding deferred revenue recorded in connection with acquisitions, divestitures and the adoption impact of Topic 606, net of foreign exchange and the change in unbilled revenue during the same period. Business subscription bookings specifically include sales of software-as-a-service offerings, royalty arrangements and term software licenses.
3

Non-GAAP net income and non-GAAP net income per share excludes the impact of purchase accounting adjustments on acquired deferred revenue, amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, restructuring-related expense, acquisition-related expense, non-cash convertible debt interest expense and the income tax effect of non-GAAP adjustments.
4

Adjusted EBITDA is calculated by excluding the impact of interest expense, net, income taxes, depreciation, amortization, purchase accounting adjustments on acquired deferred revenue, stock-based compensation expense, litigation-related expense, restructuring-related expense, and acquisition-related expense from net income (loss).
5

Non-GAAP gross margin excludes the impact of purchase accounting adjustments on acquired deferred revenue, amortization expense on intangible assets, stock-based compensation expense, and acquisition-related expense.
6

Adjusted free cash flow is calculated by subtracting the cash paid for the purchase of property and equipment and adding the payments related to acquisitions, restructuring, and litigation from net cash provided by operating activities.

Business Outlook

Based on the information available as of November 1, 2018, Carbonite expects the following for the fourth quarter and full year of 2018:

Fourth Quarter 2018:

Current Guidance
(11/1/2018)

GAAP Revenue

$77.6 - $80.6 million

Non-GAAP Revenue

$78.6 - $81.6 million

Non-GAAP Net Income Per Share (Diluted)

$0.40 - $0.44

Full Year 2018:

Prior Guidance
(8/2/2018)

Current Guidance
(11/1/2018)

Business Bookings

$223.8 - $234.8 million

$205.0 - $210.0 million

Consumer Bookings Y/Y Growth

10% - 15% growth

15% - 20% growth

GAAP Revenue

$296.9 - $306.9 million

$297.0 - $300.0 million

Non-GAAP Revenue

$302.5 - $312.5 million

$302.5 - $305.5 million

Non-GAAP Net Income Per Share (Diluted)

$1.51 - $1.59

$1.61 - $1.65

Non-GAAP Gross Margin

76.5% - 77.5%

Adjusted Free Cash Flow

$40.0 - $45.0 million

$43.0 - $46.0 million

Carbonite’s expectations of non-GAAP net income per share for the fourth quarter and full year of 2018 excludes the impact of purchase accounting adjustments on acquired deferred revenue, amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, restructuring-related expense, non-cash convertible debt interest expense, and the income tax effect of non-GAAP adjustments. Non-GAAP net income per share assumes an effective tax rate of 8% for the full year of 2018. Non-GAAP net income per share assumes fully-diluted weighted average shares outstanding of approximately 37.8 million for the fourth quarter and 34.0 million for the full year of 2018.

Conference Call and Webcast Information

Carbonite will host a conference call on Thursday, November 1, 2018 at 5:30 p.m. ET to review these results. This call will be webcast live and can be found in the investor relations section of the Company's website at http://investor.carbonite.com. The conference call can also be accessed by dialing (877) 303-1393 in the United States or (315) 625-3228 internationally with the passcode 7758358.

Following the completion of the call, a recorded replay will be available on the Company’s website, http://investor.carbonite.com, under “Events & Presentations”.

Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with GAAP, this press release contains non-GAAP financial measures, including bookings, non-GAAP revenue, non-GAAP gross margin, non-GAAP net income and non-GAAP net income per share, non-GAAP operating expense, adjusted EBITDA and adjusted free cash flow.

The Company believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and ordinary results of operations. The Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods and uses these measures in financial reports prepared for management and the Company’s board of directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software-as-a-service companies, many of which present similar non-GAAP financial measures to investors.

The Company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant items that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management. The Company urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures provided in the tables at the end of this press release, and not to rely on any single financial measure to evaluate the Company’s business.

With respect to our expectations under "Business Outlook" above, the Company has not reconciled non-GAAP net income per share to net income per share in this press release because we do not provide guidance for amortization expense on intangible assets, stock-based compensation expense, litigation-related expense, restructuring-related expense, acquisition-related expense, non-cash convertible debt interest expense, and the income tax effect of non-GAAP adjustments as we are unable to quantify certain of these amounts that would be required to be included in the GAAP measure without unreasonable efforts. In addition, the Company believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.

Cautionary Language Concerning Forward-Looking Statements

Certain matters discussed in this press release, including under “Business Outlook,” have "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements will include words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our ability to integrate acquisitions into our operations and achieve the expected benefits of such acquisitions, our ability to profitably attract new customers and retain existing customers, our dependence on the market for cloud backup services, our ability to manage growth, changes in economic or regulatory conditions or other trends affecting the Internet and the information technology industry, and those discussed in the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission (the "SEC"), which is available on www.sec.gov, and elsewhere in any subsequent periodic or current reports filed by us with the SEC. Except as required by applicable law, we do not undertake any obligation to update our forward-looking statements to reflect future events, new information or circumstances.

About Carbonite

Carbonite provides a robust Data Protection Platform for businesses, including backup, disaster recovery, high availability and workload migration technology. The Carbonite Data Protection Platform supports global businesses with secure cloud infrastructure. To learn more visit www.Carbonite.com.

Investor Relations Contact:

Jeremiah Sisitsky
Carbonite
781-928-0713
investor.relations@carbonite.com

Media Contact:

Sarah King
Carbonite
617-421-5601
media@carbonite.com


Carbonite, Inc. Consolidated Statement of Operations (unaudited) (In thousands, except share and per share amounts)


Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Revenue
$
77,682


$
61,637


$
219,442


$
177,770

Cost of revenue
21,828


17,590


63,197


53,256

Gross profit
55,854


44,047


156,245


124,514

Operating expenses:







Research and development
14,914


12,781


43,152


34,035

General and administrative
11,159


9,676


39,079


33,399

Sales and marketing
21,184


22,131


63,130


68,165

Amortization of intangible assets
3,924


553


8,515


1,535

Restructuring charges
357


–


1,260


–

Total operating expenses
51,538


45,141


155,136


137,134

Income (loss) from operations
4,316


(1,094
)

1,109


(12,620
)
Interest expense
(2,873
)

(2,416
)

(8,894
)

(5,011
)
Interest income
390


210


803


364

Other (expense) income, net
(147
)

(66
)

48


1,129

Income (loss) before income taxes
1,686


(3,366
)

(6,934
)

(16,138
)
Provision (benefit) for income taxes
1,100


237


(13,777
)

(13,750
)
Net income (loss)
$
586


$
(3,603
)

$
6,843


$
(2,388
)
Net income (loss) per share:







Basic
$
0.02


$
(0.13
)

$
0.23


$
(0.09
)
Diluted
$
0.02


$
(0.13
)

$
0.21


$
(0.09
)
Weighted-average shares outstanding:







Basic
32,876,529


27,795,858


29,965,390


27,714,273

Diluted
36,454,443


27,795,858


32,762,302


27,714,273


Carbonite, Inc. Consolidated Balance Sheets (unaudited) (In thousands)


September 30, 2018

December 31, 2017
Assets



Current assets



Cash and cash equivalents
$
200,981


$
128,231

Trade accounts receivable, net
32,582


22,219

Prepaid expenses and other current assets
10,059


6,823

Total current assets
243,622


157,273

Property and equipment, net
35,436


28,790

Other assets
13,072


804

Acquired intangible assets, net
126,501


44,994

Goodwill
155,258


80,958

Total assets
$
573,889


$
312,819

Liabilities, Temporary Equity and Stockholders’ Equity



Current liabilities



Accounts payable
$
4,074


$
10,842

Accrued compensation
9,398


9,892

Accrued expenses and other current liabilities
15,848


11,783

Short-term debt
116,640


–

Current portion of deferred revenue
121,270


100,241

Total current liabilities
267,230


132,758

Long-term debt
–


111,819

Deferred revenue, net of current portion
28,044


24,273

Other long-term liabilities
5,686


5,704

Total liabilities
300,960


274,554

Temporary equity
27,110


–

Stockholders’ equity



Common stock
365


301

Additional paid-in capital
420,383


233,343

Treasury stock, at cost
(27,837
)

(26,616
)
Accumulated deficit
(148,621
)

(169,344
)
Accumulated other comprehensive income
1,529


581

Total stockholders’ equity
245,819


38,265

Total liabilities, temporary equity and stockholders’ equity
$
573,889


$
312,819



Carbonite, Inc. Consolidated Statement of Cash Flows (unaudited) (In thousands)



Nine Months Ended September 30,

2018

2017
Operating activities



Net income (loss)
$
6,843


$
(2,388
)
Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization
29,622


16,039

Amortization of deferred costs
1,521


–

Gain on disposal of equipment
(245
)

(893
)
Impairment of capitalized software
653


906

Stock-based compensation expense
13,461


9,220

Benefit for deferred income taxes
(16,228
)

(15,054
)
Non-cash interest expense related to amortization of debt discount
4,712


2,943

Other non-cash items, net
136


(367
)
Changes in assets and liabilities, net of acquisition:



Accounts receivable
(7,001
)

510

Prepaid expenses and other current assets
(2,281
)

806

Other assets
(4,655
)

(209
)
Accounts payable
(5,811
)

346

Accrued expenses and other current liabilities
3,341


(2,153
)
Other long-term liabilities
(38
)

32

Deferred revenue
9,784


7,593

Net cash provided by operating activities
33,814


17,331

Investing activities



Purchases of property and equipment
(9,927
)

(11,944
)
Proceeds from sale of property and equipment and businesses
657


1,231

Proceeds from maturities of derivatives
2,596


370

Purchases of derivatives
(1,403
)

(4,829
)
Payment for intangibles
(5,750
)

–

Payment for acquisition, net of cash acquired
(144,597
)

(69,798
)
Net cash used in investing activities
(158,424
)

(84,970
)
Financing activities



Proceeds from exercise of stock options
1,139


4,158

Proceeds from issuance of common stock for secondary offering
199,302


–

Proceeds from issuance of treasury stock under employee stock purchase plan
1,215


–

Payments of withholding taxes in connection with restricted stock unit vesting
(2,154
)

(1,504
)
Proceeds from long-term borrowings, net of debt issuance costs
88,068


177,797

Payments on long-term borrowings
(90,000
)

(39,200
)
Repurchase of common stock
–


(14,964
)
Net cash provided by financing activities
197,570


126,287

Effect of currency exchange rate changes on cash
(210
)

1,490

Net increase in cash, cash equivalents and restricted cash
72,750


60,138

Cash, cash equivalents and restricted cash, beginning of period
128,231


59,287

Cash, cash equivalents and restricted cash, end of period
$
200,981


$
119,425


Carbonite, Inc. Reconciliation of GAAP to Non-GAAP Measures (unaudited) (In thousands, except share and per share amounts)

Reconciliation of GAAP Revenue to Non-GAAP Revenue


Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
GAAP revenue
$
77,682


$
61,637


$
219,442


$
177,770

Add:







Fair value adjustment of acquired deferred revenue
1,427


1,465


4,425


5,498

Non-GAAP revenue
$
79,109


$
63,102


$
223,867


$
183,268





Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Gross profit
55,854


44,047


156,245


124,514

Gross margin
71.9
%

71.5
%

71.2
%

70.0
%
Add:







Fair value adjustment of acquired deferred revenue
1,427


1,465


4,425


5,498

Amortization of intangibles
4,317


2,203


11,067


5,953

Stock-based compensation expense
416


287


1,154


787

Acquisition-related expense
4


176


61


309

Non-GAAP gross profit
$
62,018


$
48,178


$
172,952


$
137,061

Non-GAAP gross margin
78.4
%

76.3
%

77.3
%

74.8
%





Reconciliation of GAAP Net Income (Loss) and Net Income (Loss) per Share to Non-GAAP Net Income and Net Income per Share





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
GAAP net income (loss)
$
586


$
(3,603
)

$
6,843


$
(2,388
)
Add:







Fair value adjustment of acquired deferred revenue
1,427


1,465


4,425


5,498

Amortization of intangibles
8,241


2,756


19,582


7,488

Stock-based compensation expense
4,983


3,254


13,461


9,219

Litigation-related expense
22


49


85


193

Restructuring-related expense
357


–


1,260


–

Acquisition-related expense
219


2,086


6,196


6,364

Non-cash convertible debt interest expense
1,611


1,477


4,712


2,943

Less:







Income tax effect of non-GAAP adjustments
126


190


16,944


15,241

Non-GAAP net income
$
17,320


$
7,294


$
39,620


$
14,076

GAAP net income (loss) per share:







Basic
$
0.02


$
(0.13
)

$
0.23


$
(0.09
)
Diluted
$
0.02


$
(0.13
)

$
0.21


$
(0.09
)
Non-GAAP net income per share:







Basic
$
0.53


$
0.26


$
1.32


$
0.51

Diluted
$
0.48


$
0.25


$
1.21


$
0.47

GAAP weighted-average shares outstanding:







Basic
32,876,529


27,795,858


29,965,390


27,714,273

Diluted
36,454,443


27,795,858


32,762,302


27,714,273

Non-GAAP weighted-average shares outstanding:







Basic
32,876,529


27,795,858


29,965,390


27,714,273

Diluted
36,454,443


29,007,629


32,762,302


29,649,353





Reconciliation of GAAP Operating Expense to Non-GAAP Operating Expense





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Research and development
$
14,914


$
12,781


$
43,152


$
34,035

Less:







Stock-based compensation expense
1,022


590


2,756


1,304

Acquisition-related expense
3


1,038


40


1,172

Non-GAAP research and development
$
13,889


$
11,153


$
40,356


$
31,559









General and administrative
$
11,159


$
9,676


$
39,079


$
33,399

Less:







Stock-based compensation expense
2,656


1,860


7,274


5,800

Litigation-related expense
22


49


85


193

Acquisition-related expense
208


494


6,019


4,303

Non-GAAP general and administrative
$
8,273


$
7,273


$
25,701


$
23,103









Sales and marketing
$
21,184


$
22,131


$
63,130


$
68,165

Less:







Stock-based compensation expense
889


517


2,277


1,328

Acquisition-related expense
4


378


76


580

Non-GAAP sales and marketing
$
20,291


$
21,236


$
60,777


$
66,257









Amortization of intangible assets
$
3,924


$
553


$
8,515


$
1,535

Less:







Amortization of intangible assets
3,924


553


8,515


1,535

Non-GAAP amortization of intangible assets
$
–


$
–


$
–


$
–









Restructuring charges
$
357


$
–


$
1,260


$
–

Less:







Restructuring-related expense
357


–


1,260


–

Non-GAAP restructuring charges
$
–


$
–


$
–


$
–





Reconciliation of Revenue to Bookings





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
GAAP revenue
$
77,682


$
61,637


$
219,442


$
177,770

Add:







Change in deferred revenue
600


(1,275
)

24,800


18,114

Deferred revenue divested
–


–


288


373

Impact of Topic 606 adoption
–


–


3,998


–

Impact of foreign exchange
–


–


24


–

Less:







Impact of foreign exchange
98


377


–


1,150

Beginning deferred revenue from acquisitions
–


320


19,740


9,420

Change in unbilled revenue
(611
)

–


643


–

Change in deferred revenue and adjustments
1,113


(1,972
)

8,727


7,917

Bookings
$
78,795


$
59,665


$
228,169


$
185,687





Calculation of Adjusted Free Cash Flow





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Net cash provided by operating activities
$
16,968


$
6,898


$
33,814


$
17,331

Subtract:







Purchases of property and equipment
2,132


1,905


9,927


11,944

Free cash flow
14,836


4,993


23,887


5,387









Add:







Acquisition-related payments
1,891


954


7,219


4,843

Restructuring-related payments
461


–


1,586


–

Litigation-related payments
63


68


275


137

Adjusted free cash flow
$
17,251


$
6,015


$
32,967


$
10,367





Reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss)





Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017
Net income (loss)
$
586


$
(3,603
)

$
6,843


$
(2,388
)
Adjustments:







Interest expense, net
2,483


2,206


8,091


4,647

Income tax provision (benefit)
1,100


237


(13,777
)

(13,750
)
Depreciation and amortization
11,859


5,647


29,622


16,039

EBITDA
16,028


4,487


30,779


4,548









Adjustments to EBITDA:







Fair value adjustment of acquired deferred revenue
1,427


1,465


4,425


5,498

Stock-based compensation expense
4,983


3,254


13,461


9,219

Litigation-related expense
22


49


85


193

Restructuring-related expense
357


–


1,260


–

Acquisition-related expense
219


2,086


6,196


6,364

Adjusted EBITDA
$
23,036


$
11,341


$
56,206


$
25,822

Company Name:	Carbonite Inc.
Stock Symbol:	CARB
Market:	NASDAQ
Website:	carbonite.com

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