Carbonite : Announces Second Quarter 2019 Financial Results

Carbonite, Inc. (NASDAQ: CARB), a global leader in data protection, today announced financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Highlights:

• Revenue of $121.5 million increased 56% year-over-year.
• Non-GAAP revenue of $135.0 million increased 69% year-over-year.¹
• Net loss was ($11.3) million, compared to net loss of ($5.7) million in 2018.
• Net loss per share was ($0.33) (basic and diluted), as compared to ($0.20) (basic and diluted) in 2018.
• Non-GAAP net income per share was $0.58 (basic) and $0.56 (diluted), as compared to $0.50 (basic) and $0.45 (diluted) in 2018.²
• Adjusted EBITDA of $39.1 million, or 29% of non-GAAP revenue, compared to $20.9 million, or 26% of non-GAAP revenue in 2018.³

“Carbonite delivered second quarter non-GAAP revenue of $135 million, up 69% year-over-year, while delivering an adjusted EBITDA margin of 29%,” said Steve Munford, chairman of the board and interim CEO of Carbonite. “Our security software business performed well during the quarter, however, we continued to experience challenges in parts of our data protection business. We remain committed to capitalizing on the opportunity of combining data protection and security, while we improve the effectiveness of our go-to-market efforts and deliver on our profitability targets.”

Munford added, “During the quarter we executed on our previously stated plans and made approximately $55 million in accelerated principal payments on our outstanding term loan; we remain committed to leveraging our strong and growing free cash flow to aggressively pay down outstanding debt.”

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.

Second Quarter 2019 Results:

• Revenue for the second quarter was $121.5 million, an increase of 56% from $77.7 million in the second quarter of 2018. Non-GAAP revenue for the second quarter was $135.0 million, an increase of 69% from $79.9 million in the second quarter of 2018.¹
• Net loss for the second quarter was ($11.3) million, compared to net loss of ($5.7) million in the second quarter of 2018. Non-GAAP net income for the second quarter was $19.8 million, compared to non-GAAP net income of $14.2 million in the second quarter of 2018.
• Net loss per share for the second quarter was ($0.33) (basic and diluted), compared to net loss per share of ($0.20) (basic and diluted) in the second quarter of 2018. Non-GAAP net income per share was $0.58 (basic) and $0.56 (diluted) for the second quarter, compared to non-GAAP net income per share of $0.50 (basic) and $0.45 (diluted) in the second quarter of 2018.²
• Adjusted EBITDA for the second quarter was $39.1 million, compared to $20.9 million in the second quarter of 2018.³
• Gross margin for the second quarter was 72.4%, compared to 70.3% in the second quarter of 2018. Non-GAAP gross margin was 82.3% in the second quarter, compared to 77.1% in the second quarter of 2018.⁴
• Cash flow from operations for the second quarter was $20.3 million, compared to $13.6 million in the second quarter of 2018. Adjusted free cash flow for the second quarter was $24.3 million, compared to $13.3 million in the second quarter of 2018.⁵

_____________

1. Non-GAAP revenue excludes the impact of purchase accounting adjustments for acquisitions.
2. 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.
3. 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 (loss) income.
4. 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.
5. 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 to net cash provided by operating activities.

CEO Transition

In a separate press release issued today, Carbonite announced that Steve Munford has been named interim CEO of Carbonite, effective immediately. Mr. Munford succeeds Mohamad Ali, who has stepped down as president and CEO and as a member of the Carbonite Board, also effective immediately.

Business Outlook

Based on the information available as of July 25, 2019, Carbonite expects the following for the third quarter and full year of 2019:

Third Quarter 2019:

		Current Guidance (7/25/2019)
GAAP Revenue		$117 - $119 million
Non-GAAP Revenue		$131 - $133 million
Adjusted EBITDA		$34 - $37 million

Full Year 2019:

		Prior Guidance (5/2/2019)		Current Guidance (7/25/2019)
GAAP Revenue		$457 - $471 million		$443.5 - $448.5 million
Non-GAAP Revenue		$491 - $505 million		$477.5 - $482.5 million
Non-GAAP Gross Margin		80.5% - 81.5%		80.5% - 81.5%
Adjusted EBITDA		$132 - $137 million		$132 - $137 million

Carbonite’s expectations of adjusted EBITDA for the third quarter and full year of 2019 excludes 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).

The Company is assuming an effective annual tax rate of approximately 22% and 35.5 million shares outstanding for the full year of 2019.

Conference Call and Webcast Information

Carbonite will host a conference call on Thursday, July 25, 2019 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 [phone] in the United States or [phone] internationally with the passcode: 8188460.

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 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 gross margin to gross margin or adjusted EBITDA to net income (loss) in this press release because we do not provide guidance for amortization expense on intangible assets, depreciation expense, stock-based compensation expense, litigation-related expense, income tax expense, restructuring-related expense, interest expense, and acquisition-related expense 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 the Webroot acquisition and other acquisitions into our operations and achieve the expected operational and financial benefits of such acquisitions and the timing of such benefits, 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, 2018 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 businesses on a global scale with secure cloud infrastructure. To learn more, visit www.carbonite.com and follow us on Twitter at @Carbonite.

Carbonite, Inc. serves customers through three brands: Carbonite data protection, Webroot cybersecurity, and MailStore email archiving.

Carbonite, Inc. Consolidated Statement of Operations (unaudited) (In thousands, except share and per share amounts)
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
Revenue:
Services		$	114,431			$	68,814			$	185,934			$	123,388
Product		7,079				8,920				16,791				18,372
Total revenue		121,510				77,734				202,725				141,760
Cost of revenue:
Services		23,956				18,358				41,058				33,688
Product		440				374				823				931
Amortization of intangible assets		9,081				4,325				12,375				6,750
Total cost of revenue		33,477				23,057				54,256				41,369
Gross profit		88,033				54,677				148,469				100,391
Operating expenses:
Research and development		27,879				15,719				43,686				28,238
General and administrative		17,567				13,460				38,556				27,920
Sales and marketing		36,945				22,086				58,710				41,946
Amortization of intangible assets		9,765				3,652				14,065				4,591
Restructuring charges		702				41				702				903
Total operating expenses		92,858				54,958				155,719				103,598
Loss from operations		(4,825		)		(281		)		(7,250		)		(3,207		)
Interest expense		(11,844		)		(3,420		)		(15,855		)		(6,021		)
Interest income		418				169				1,383				413
Other income (expense), net		175				183				387				195
Loss before income taxes		(16,076		)		(3,349		)		(21,335		)		(8,620		)
(Benefit) provision for income taxes		(4,802		)		2,338				(12,064		)		(14,877		)
Net (loss) income		$	(11,274	)		$	(5,687	)		$	(9,271	)		$	6,257
Net (loss) income per share:
Basic		$	(0.33	)		$	(0.20	)		$	(0.27	)		$	0.22
Diluted		$	(0.33	)		$	(0.20	)		$	(0.27	)		$	0.20
Weighted-average shares outstanding:
Basic		34,459,359				28,628,173				34,312,971				28,485,695
Diluted		34,459,359				28,628,173				34,312,971				30,885,633

Carbonite, Inc. Consolidated Balance Sheets (unaudited) (In thousands)
		June 30, 2019				December 31, 2018
Assets
Current assets
Cash and cash equivalents		$	83,378			$	198,087
Trade accounts receivable, net		47,110				31,569
Prepaid expenses and other current assets		22,573				10,409
Total current assets		153,061				240,065
Property and equipment, net		45,961				34,101
Right-of-use lease assets		48,299				—
Other assets		24,176				13,876
Acquired intangible assets, net		417,827				117,963
Goodwill		543,524				155,086
Total assets		$	1,232,848			$	561,091
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	7,787			$	2,114
Accrued compensation		20,919				11,620
Accrued expenses and other current liabilities		29,947				15,844
Current portion of deferred revenue		180,053				121,553
Total current liabilities		238,706				151,131
Long-term debt		598,301				118,305
Long-term lease liabilities		46,750				—
Deferred revenue, net of current portion		43,727				29,151
Long-term deferred tax liabilities		43,052				1,456
Other long-term liabilities		3,140				3,838
Total liabilities		973,676				303,881
Stockholders’ equity
Common stock		374				366
Additional paid-in capital		461,633				451,618
Treasury stock, at cost		(47,850		)		(48,522		)
Accumulated other comprehensive income		2,188				1,650
Accumulated deficit		(157,173		)		(147,902		)
Total stockholders’ equity		259,172				257,210
Total liabilities and stockholders’ equity		$	1,232,848			$	561,091

Carbonite, Inc. Consolidated Statement of Cash Flows (unaudited) (In thousands)
		Six Months Ended June 30, 2019
		2019				2018
Operating activities
Net (loss) income		$	(9,271	)		$	6,257
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		34,214				17,763
Amortization of right-of-use lease assets		3,556				—
Amortization of deferred costs		1,413				931
Gain on disposal of equipment		(17		)		(141		)
Impairment of capitalized software		—				653
Stock-based compensation expense		9,717				8,478
Benefit for deferred income taxes		(12,241		)		(16,317		)
Non-cash interest expense related to amortization of debt discount		3,955				3,101
Other non-cash items, net		(262		)		64
Changes in assets and liabilities, net of acquisition:
Accounts receivable		3,401				(6,437		)
Prepaid expenses and other current assets		(394		)		(1,541		)
Other assets		(1,512		)		(3,771		)
Accounts payable		4,553				(3,895		)
Accrued expenses and other current liabilities		(6,254		)		2,549
Other long-term liabilities		(6,858		)		53
Deferred revenue		15,020				9,099
Net cash provided by operating activities		39,020				16,846
Investing activities
Purchases of property and equipment		(6,023		)		(7,795		)
Proceeds from sale of property and equipment and businesses		77				534
Proceeds from maturities of derivatives		1,340				1,680
Purchases of derivatives		(6		)		(1,403		)
Payment for intangibles		—				(1,250		)
Payment for acquisition, net of cash acquired		(622,009		)		(144,597		)
Net cash used in investing activities		(626,621		)		(152,831		)
Financing activities
Proceeds from exercise of stock options		263				942
Proceeds from issuance of treasury stock under employee stock purchase plan		1,582				1,215
Payments of withholding taxes in connection with restricted stock unit vesting		(905		)		(1,184		)
Proceeds from long-term borrowings, net of debt issuance costs		529,483				88,068
Payments on long-term borrowings		(55,000		)		(10,000		)
Net cash provided by financing activities		475,423				79,041
Effect of currency exchange rate changes on cash		(92		)		(305		)
Net decrease in cash, cash equivalents and restricted cash		(112,270		)		(57,249		)
Cash, cash equivalents and restricted cash, beginning of period		198,087				128,231
Cash, cash equivalents and restricted cash, end of period		$	85,817			$	70,982

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 June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
GAAP revenue		$	121,510			$	77,734			$	202,725			$	141,760
Add:
Fair value adjustment of acquired deferred revenue		13,537				2,116				15,290				2,998
Non-GAAP revenue		$	135,047			$	79,850			$	218,015			$	144,758

Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
Gross profit		$	88,033			$	54,677			$	148,469			$	100,391
Gross margin		72.4		%		70.3		%		73.2		%		70.8		%
Add:
Fair value adjustment of acquired deferred revenue		13,537				2,116				15,290				2,998
Amortization of intangibles		9,081				4,325				12,375				6,750
Stock-based compensation expense		478				413				902				738
Acquisition-related expense		—				3				14				57
Non-GAAP gross profit		$	111,129			$	61,534			$	177,050			$	110,934
Non-GAAP gross margin		82.3		%		77.1		%		81.2		%		76.6		%

Reconciliation of GAAP Net Income and Net Income per Share to Non-GAAP Net Income and Net Income per Share
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
GAAP net (loss) income		$	(11,274	)		$	(5,687	)		$	(9,271	)		$	6,257
Add:
Fair value adjustment of acquired deferred revenue		13,537				2,116				15,290				2,998
Amortization of intangibles		18,846				7,977				26,440				11,341
Stock-based compensation expense		5,512				4,741				9,717				8,478
Litigation-related expense		73				46				171				63
Restructuring-related expense		702				41				702				903
Acquisition-related expense		872				2,357				10,735				5,977
Non-cash debt interest expense		2,243				1,558				3,955				3,101
Less:
Income tax effect of non-GAAP adjustments		10,664				(1,027		)		22,455				16,818
Non-GAAP net income		$	19,847			$	14,176			$	35,284			$	22,300
GAAP net (loss) income per share:
Basic		$	(0.33	)		$	(0.20	)		$	(0.27	)		$	0.22
Diluted		$	(0.33	)		$	(0.20	)		$	(0.27	)		$	0.20
Non-GAAP net income per share:
Basic		$	0.58			$	0.50			$	1.03			$	0.78
Diluted		$	0.56			$	0.45			$	1.00			$	0.72
GAAP weighted-average shares outstanding:
Basic		34,459,359				28,628,173				34,312,971				28,485,695
Diluted		34,459,359				28,628,173				34,312,971				30,885,633
Non-GAAP weighted-average shares outstanding:
Basic		34,459,359				28,628,173				34,312,971				28,485,695
Diluted		35,277,653				31,718,232				35,285,788				30,885,633

Reconciliation of GAAP Operating Expense to Non-GAAP Operating Expense
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
Research and development		$	27,879			$	15,719			$	43,686			$	28,238
Less:
Stock-based compensation expense		1,611				1,047				2,557				1,734
Acquisition-related expense		—				2				83				37
Non-GAAP research and development		$	26,268			$	14,670			$	41,046			$	26,467
General and administrative		$	17,567			$	13,460			$	38,556			$	27,920
Less:
Stock-based compensation expense		2,290				2,494				4,248				4,618
Litigation-related expense		73				46				171				63
Acquisition-related expense		768				2,321				10,246				5,811
Non-GAAP general and administrative		$	14,436			$	8,599			$	23,891			$	17,428
Sales and marketing		$	36,945			$	22,086			$	58,710			$	41,946
Less:
Stock-based compensation expense		1,133				787				2,010				1,388
Acquisition-related expense		104				31				392				72
Non-GAAP sales and marketing		$	35,708			$	21,268			$	56,308			$	40,486
Amortization of intangible assets		$	9,765			$	3,652			$	14,065			$	4,591
Less:
Amortization of intangible assets		9,765				3,652				14,065				4,591
Non-GAAP amortization of intangible assets		$	—			$	—			$	—			$	—
Restructuring charges		$	702			$	41			$	702			$	903
Less:
Restructuring-related expense		702				41				702				903
Non-GAAP restructuring charges		$	—			$	—			$	—			$	—

Calculation of Adjusted Free Cash Flow
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
Net cash provided by operating activities		$	20,276			$	13,555			$	39,020			$	16,846
Subtract:
Purchases of property and equipment		3,265				4,507				6,023				7,795
Free cash flow		17,011				9,048				32,997				9,051
Add:
Acquisition-related payments		7,182				3,681				10,853				5,328
Restructuring-related payments		—				461				—				1,125
Litigation-related payments		137				85				138				212
Adjusted free cash flow		$	24,330			$	13,275			$	43,988			$	15,716

Reconciliation of EBITDA and Adjusted EBITDA to Net (Loss) Income
		Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
		2019				2018				2019				2018
Net (loss) income		$	(11,274	)		$	(5,687	)		$	(9,271	)		$	6,257
Adjustments:
Interest expense, net		11,426				3,251				14,472				5,608
Income tax (benefit) provision		(4,802		)		2,338				(12,064		)		(14,877		)
Depreciation and amortization		23,065				11,686				34,214				17,763
EBITDA		18,415				11,588				27,351				14,751
Adjustments to EBITDA:
Fair value adjustment of acquired deferred revenue		13,537				2,116				15,290				2,998
Stock-based compensation expense		5,512				4,741				9,717				8,478
Litigation-related expense		73				46				171				63
Restructuring-related expense		702				41				702				903
Acquisition-related expense		872				2,357				10,735				5,977
Adjusted EBITDA		$	39,111			$	20,889			$	63,966			$	33,170

 

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