Carbonite Announces Third Quarter 2018 Financial Results

November 1, 2018 at 4:05 PM EDT

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% 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  
                               

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Source: Carbonite, Inc.


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