Barracuda Networks, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

November 30, 2014

February 28, 2014

Assets

Current assets:

Cash and cash equivalents

$                      159,895

$                   135,879

Marketable securities

11,460

-

Accounts receivable, net of allowance for doubtful accounts 

40,998

27,836

Inventories, net

5,137

5,648

Deferred costs

29,162

25,707

Deferred income taxes

35,975

30,156

Other current assets

6,044

4,900

Total current assets

288,671

230,126

Property and equipment, net

24,328

20,558

Deferred costs, non-current

26,952

24,572

Deferred income taxes, non-current

33,055

28,515

Other non-current assets

2,390

1,851

Intangible assets, net

9,873

8,420

Goodwill

40,571

36,014

Total assets

$                      425,840

$                   350,056

Liabilities and stockholders' equity (deficit)

Current liabilities:

Accounts payable

$                         13,839

$                     13,743

Accrued payroll and related benefits

9,212

8,494

Other accrued liabilities

9,883

9,374

Deferred revenue

199,054

167,562

Deferred income taxes

291

260

Note payable

248

237

Total current liabilities

232,527

199,670

Long-term liabilities:

Deferred revenue, non-current

159,218

145,595

Deferred income taxes, non-current

939

84

Note payable, non-current

4,447

4,635

Other long-term liabilities

7,606

5,727

Stockholders' equity (deficit):

Common stock

52

52

Additional paid-in capital

305,987

278,551

Accumulated other comprehensive loss

(2,348)

(817)

Accumulated deficit

(282,588)

(283,441)

Total stockholders' equity (deficit)

21,103

(5,655)

Total liabilities and stockholders' equity (deficit)

$                      425,840

$                   350,056

Barracuda Networks, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share information)

(Unaudited)

Three months ended

November 30,

Nine months ended November 30,

2014

2013

2014

2013

Revenue:

Appliance

$   20,692

$   18,174

$   62,204

$   53,583

Subscription

49,715

41,212

143,064

119,870

Total revenue

70,407

59,386

205,268

173,453

Cost of revenue

14,438

14,017

42,888

40,498

Gross profit

55,969

45,369

162,380

132,955

Operating expenses:

Research and development

15,389

12,083

42,167

34,563

Sales and marketing

33,395

28,785

93,905

86,013

General and administrative

8,759

7,513

25,947

22,018

Total operating expenses

57,543

48,381

162,019

142,594

Income (loss) from operations

(1,574)

(3,012)

361

(9,639)

Other income (expense), net

(1,789)

121

(2,527)

(329)

Income (loss) before income taxes and non-controlling interest

(3,363)

(2,891)

(2,166)

(9,968)

Benefit from income taxes

3,327

599

3,019

2,735

Consolidated net income (loss)

(36)

(2,292)

853

(7,233)

Net loss attributable to non-controlling interest

-

199

-

561

Net income (loss) attributable to Barracuda Networks, Inc.

$         (36)

$   (2,093)

$         853

$   (6,672)

Net income (loss) per share attributable to Barracuda Networks, Inc.:

Basic

$             -

$     (0.06)

$        0.02

$     (0.22)

Diluted

$             -

$     (0.06)

$        0.02

$     (0.22)

Weighted-average shares used to compute net income (loss) per share attributable to Barracuda Networks, Inc.:

Basic

52,142

34,256

51,655

30,179

Diluted

52,142

34,256

53,785

30,179

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands)

(Unaudited)

Three months ended November 30,

Nine months ended November 30,

2014

2013

2014

2013

GAAP cost of revenue

$   14,438

$   14,017

$   42,888

$   40,498

Amortization of intangible assets (1)

533

889

1,879

3,018

Depreciation expense (2)

817

907

2,245

1,935

Stock-based compensation expense (3)

121

58

246

146

Non-GAAP cost of revenue

$   12,967

$   12,163

$   38,518

$   35,399

GAAP sales and marketing expense

$   33,395

$   28,785

$   93,905

$   86,013

Amortization of intangible assets (1)

238

424

979

1,341

Depreciation expense (2)

42

55

119

172

Stock-based compensation expense (3)

1,143

578

2,546

1,278

Non-GAAP sales and marketing expense

$   31,972

$   27,728

$   90,261

$   83,222

GAAP research and development expense

$   15,389

$   12,083

$   42,167

$   34,563

Depreciation expense (2)

176

146

483

410

Stock-based compensation expense (3)

1,250

209

2,900

1,474

Acquisition and other non-recurring charges (4)

372

375

1,127

875

Non-GAAP research and development expense

$   13,591

$   11,353

$   37,657

$   31,804

GAAP general and administrative expense

$     8,759

$     7,513

$   25,947

$   22,018

Amortization of intangible assets (1)

-

6

-

23

Depreciation expense (2)

312

206

835

468

Stock-based compensation expense (3)

2,350

1,578

5,990

4,653

Acquisition and other non-recurring charges (4)

213

212

487

579

Non-GAAP general and administrative expense

$     5,884

$     5,511

$   18,635

$   16,295

GAAP total expense

$   71,981

$   62,398

$ 204,907

$ 183,092

Amortization of intangible assets (1)

771

1,319

2,858

4,382

Depreciation expense (2)

1,347

1,314

3,682

2,985

Stock-based compensation expense (3)

4,864

2,423

11,682

7,551

Acquisition and other non-recurring charges (4)

585

587

1,614

1,454

Non-GAAP total expense

$   64,414

$   56,755

$ 185,071

$ 166,720

Depreciation expense (2)

1,347

1,314

3,682

2,985

Non-GAAP total expense including depreciation

$   65,761

$   58,069

$ 188,753

$ 169,705

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands, except per share information)

(Unaudited)

Three months ended November 30,

Nine months ended November 30,

2014

2013

2014

2013

GAAP operating income (loss)

$   (1,574)

$   (3,012)

$         361

$   (9,639)

Amortization of intangible assets (1)

771

1,319

2,858

4,382

Stock-based compensation expense (3)

4,864

2,423

11,682

7,551

Acquisition and other non-recurring charges (4)

585

587

1,614

1,454

Non-GAAP operating income

$     4,646

$     1,317

$   16,515

$     3,748

GAAP net income (loss) attributable to Barracuda Networks, Inc.

$         (36)

$   (2,093)

$         853

$   (6,672)

Amortization of intangible assets (1)

771

1,319

2,858

4,382

Stock-based compensation expense (3)

4,864

2,423

11,682

7,551

Acquisition and other non-recurring charges (4)

585

587

1,614

1,454

Income tax effect of non-GAAP exclusions (5)

(4,695)

(1,277)

(7,881)

(3,986)

Other income adjustments (6)

1,703

(267)

2,219

(94)

Non-controlling interest (7)

-

(199)

-

(561)

Non-GAAP net income

$     3,192

$         493

$   11,345

$     2,074

Non-GAAP diluted earnings per share (8)

$        0.06

$        0.01

$        0.21

$        0.04

Weighted-average shares used to compute diluted earnings per share

54,007

48,721

53,785

47,602

(1)

Amortization of Intangible Assets. We provide non-GAAP information which excludes expenses for the amortization of intangible assets, as well as certain losses from disposal 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 this item allows for financial results that are more indicative of our continuing operations. We 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.

Acquisition and Other Non-Recurring Charges. We exclude certain expense items resulting from acquisitions and other non-recurring charges, which we do not expect to recur in our continuing operating results. 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) costs associated with an internal investigation of export control compliance and (ii) legal, accounting and advisory fees, to the extent associated with acquisitions, as well as contingent consideration payments under the terms of certain acquisition agreements.

(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, and (iii) acquisition and other non-recurring charges.

(6)

Other Income Adjustments. We provide non-GAAP information that excludes the effect of certain other income and losses. These adjustments most significantly consist of foreign currency re-measurement gains and losses. For all non-functional currency account balances, the re-measurement of such balances to the functional currency will result in either a foreign exchange gain or a loss which is recorded in other income (expense), net. We believe that eliminating these items from our non-GAAP measures is useful to investors, because foreign currency re-measurement adjustments can be inconsistent in amount and can vary from period to period.

(7)

Non-Controlling Interest. We provide non-GAAP information that includes the results related to entities in which we hold a minority interest. We believe that adjusting for these amounts allows us to better compare results from period to period in order to assess the ongoing operating results of our business, including entities for which we own a minority interest.

(8)

Non-GAAP Diluted Earnings Per Share. We provide non-GAAP diluted earnings per share. The non-GAAP diluted earnings per share amount is calculated based on our non-GAAP net income divided by the weighted-average diluted shares outstanding for the period.

Barracuda Networks, Inc.

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(in thousands)

(Unaudited)

Three months ended November 30,

Nine months ended November 30,

2014

2013

2014

2013

GAAP net income (loss) attributable to Barracuda Networks, Inc.

$           (36)

$     (2,093)

$           853

$     (6,672)

Deferred revenue, end of period

357,694

298,823

357,694

298,823

Less: Deferred revenue, beginning of period

(342,663)

(286,792)

(313,157)

(261,243)

Less: Deferred costs, end of period

(56,114)

(48,270)

(56,114)

(48,270)

Deferred costs, beginning of period

54,582

46,058

50,279

39,470

Other expense (income), net

1,789

(121)

2,527

329

Benefit from income taxes

(3,327)

(599)

(3,019)

(2,735)

Acquisition and other non-recurring charges

585

587

1,614

1,454

Stock-based compensation expense

4,864

2,423

11,682

7,551

Amortization of intangible assets

771

1,319

2,858

4,382

Depreciation expense

1,347

1,314

3,682

2,985

Adjusted EBITDA (1)

$     19,492

$     12,649

$     58,899

$     36,074

Barracuda Networks, Inc.

Reconciliation of GAAP Cash Flows from Operating Activities to Adjusted Free Cash Flow

(in thousands)

(Unaudited)

Three months ended November 30,

Nine months ended November 30,

2014

2013

2014

2013

GAAP cash flows from operating activities

$   12,192

$   10,593

$   33,074

$   22,676

Purchase of property and equipment

(3,284)

(1,328)

(7,059)

(5,857)

Acquisition and other non-recurring charges (1)

575

447

1,350

3,916

Adjusted free cash flow (2)

$     9,483

$     9,712

$   27,365

$   20,735

Barracuda Networks, Inc.

Reconciliation of GAAP Revenue to Gross Billings

(in thousands)

(Unaudited)

Three months ended November 30,

Nine months ended November 30,

2014

2013

2014

2013

GAAP Revenue

$     70,407

$     59,386

$  205,268

$  173,453

Total deferred revenue, end of period

357,694

298,823

357,694

298,823

Less:  total deferred revenue, beginning of period

(342,663)

(286,792)

(313,157)

(261,243)

Deferred revenue adjustments

6,094

6,054

18,362

16,926

Total change in deferred revenue and adjustments

21,125

18,085

62,899

54,506

Gross billings (1)(2)

$     91,532

$     77,471

$  268,167

$  227,959

(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. The deferred revenue balances as of November 30, 2014 and August 31, 2014 exclude the amounts related to acquisition date deferred revenue assumed from C2C Systems Limited. 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 November 30, 2013, 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.