Barracuda Networks, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

May 31, 2015

February 28, 2015

Assets

Current assets:

Cash and cash equivalents

$       156,062

$                 151,373

Marketable securities

44,768

40,754

Accounts receivable, net of allowance for doubtful accounts 

43,154

40,725

Inventories, net

4,717

4,454

Deferred costs

31,146

30,221

Deferred income taxes

97

479

Other current assets

11,752

12,260

Total current assets

291,696

280,266

Property and equipment, net

27,911

27,839

Deferred costs, non-current

28,109

27,715

Deferred income taxes, non-current

423

443

Other non-current assets

4,059

4,123

Intangible assets, net

8,627

9,217

Goodwill

39,598

39,742

Total assets

$       400,423

$                 389,345

Liabilities and stockholders' deficit

Current liabilities:

Accounts payable

$          13,129

$                   16,356

Accrued payroll and related benefits

11,210

11,656

Other accrued liabilities

11,640

12,465

Deferred revenue

218,131

209,904

Deferred income taxes

420

563

Note payable

255

252

Total current liabilities

254,785

251,196

Long-term liabilities:

Deferred revenue, non-current

163,011

163,253

Deferred income taxes, non-current

2,146

2,396

Note payable, non-current

4,317

4,383

Other long-term liabilities

7,504

7,201

Stockholders' deficit:

Common stock

53

53

Additional paid-in capital

325,810

316,035

Accumulated other comprehensive loss

(2,432)

(4,233)

Accumulated deficit

(354,771)

(350,939)

Total stockholders' deficit

(31,340)

(39,084)

Total liabilities and stockholders' deficit

$       400,423

$                 389,345

Barracuda Networks, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share information)

(Unaudited)

Three months ended May 31,

2015

2014

Revenue:

Appliance

$                               23,682

$                                   20,836

Subscription

54,292

45,373

Total revenue

77,974

66,209

Cost of revenue

15,966

14,406

Gross profit

62,008

51,803

Operating expenses:

Research and development

18,000

12,952

Sales and marketing

34,132

29,479

General and administrative

10,698

8,564

Total operating expenses

62,830

50,995

Income (loss) from operations

(822)

808

Other expense, net

(568)

(57)

Income (loss) before income taxes

(1,390)

751

Provision for income taxes

(2,442)

(600)

Net income (loss)

$                                  (3,832)

$                                         151

Net income (loss) per share:

Basic

$                                    (0.07)

$                                             -

Diluted

$                                    (0.07)

$                                             -

Weighted-average shares used to compute net income (loss) per share:

Basic

52,996

51,156

Diluted

52,996

53,605

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands)

(Unaudited)

Three months ended May 31,

2015

2014

GAAP cost of revenue

$                           15,966

$                           14,406

Amortization of intangible assets (1)

404

673

Depreciation expense (2)

1,032

672

Stock-based compensation expense (3)

211

52

Non-GAAP cost of revenue

$                            14,319

$                            13,009

GAAP sales and marketing expense

$                            34,132

$                            29,479

Amortization of intangible assets (1)

174

303

Depreciation expense (2)

26

39

Stock-based compensation expense (3)

1,550

582

Acquisition and other non-recurring charges (4)

(325)

-

Non-GAAP sales and marketing expense

$                            32,707

$                            28,555

GAAP research and development expense

$                            18,000

$                            12,952

Depreciation expense (2)

169

151

Stock-based compensation expense (3)

1,835

748

Acquisition and other non-recurring charges (4)

1,105

372

Non-GAAP research and development expense

$                            14,891

$                            11,681

GAAP general and administrative expense

$                            10,698

$                              8,564

Depreciation expense (2)

369

249

Stock-based compensation expense (3)

2,948

1,700

Acquisition and other non-recurring charges (4)

293

17

Non-GAAP general and administrative expense

$                              7,088

$                              6,598

GAAP total expense

$                            78,796

$                            65,401

Amortization of intangible assets (1)

578

976

Depreciation expense (2)

1,596

1,111

Stock-based compensation expense (3)

6,544

3,082

Acquisition and other non-recurring charges (4)

1,073

389

Non-GAAP total expense

$                            69,005

$                            59,843

Depreciation expense (2)

1,596

1,111

Non-GAAP total expense including depreciation

$                            70,601

$                            60,954

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands, except per share information)

(Unaudited)

Three months ended May 31,

2015

2014

GAAP operating income (loss)

$                               (822)

$                                 808

Amortization of intangible assets (1)

578

976

Stock-based compensation expense (3)

6,544

3,082

Acquisition and other non-recurring charges (4)

1,073

389

Non-GAAP operating income

$                              7,373

$                              5,255

GAAP net income (loss) 

$                            (3,832)

$                                 151

Amortization of intangible assets (1)

578

976

Stock-based compensation expense (3)

6,544

3,082

Acquisition and other non-recurring charges (4)

1,073

389

Income tax effect of non-GAAP exclusions (5)

240

(943)

Other expense (income) adjustments (6)

534

(53)

Non-GAAP net income

$                              5,137

$                              3,602

Non-GAAP diluted earnings per share (7)

$                                0.09

$                                0.07

Weighted-average shares used to compute diluted earnings per share

55,034

53,605

(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.

(4)

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, valuation consulting and other expenses incurred in connection with acquisitions, the fair value remeasurements of contingent considerations, the payments made under the terms of certain acquisition agreements and other non-recurring expenses.

(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, (iii) acquisition and other non-recurring charges, and (iv) quarterly changes to the valuation allowance previously established.

(6)

Other Expense (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 remeasurement gains and losses. For all non-functional currency account balances, the remeasurement of such balances to the functional currency will result in either a foreign exchange gain or a loss which is recorded in other expense, net. We believe that eliminating these items from our non-GAAP measures is useful to investors, because foreign currency remeasurement adjustments can be inconsistent in amount and can vary from period to period.

(7)

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 May 31,

2015

2014

GAAP net income (loss)

$   (3,832)

$         151

Deferred revenue, end of period

381,003

328,488

Less: Deferred revenue, beginning of period

(372,862)

(313,157)

Less: Deferred costs, end of period

(59,255)

(52,549)

Deferred costs, beginning of period

57,936

50,279

Other expense, net

568

57

Provision for income taxes

2,442

600

Acquisition and other non-recurring charges

1,073

389

Stock-based compensation expense

6,544

3,082

Amortization of intangible assets

578

976

Depreciation expense

1,596

1,111

Adjusted EBITDA (1)

$   15,791

$   19,427

(1)

Adjusted EBITDA. We define adjusted EBITDA as net income (loss) plus increases in deferred revenue and increases in the associated deferred costs, plus non-cash and non-operating charges which include: (i) other expense, net, (ii) provision for income taxes, (iii) acquisition and other non-recurring charges, (iv) stock-based compensation expense, (v) amortization of intangible assets, including certain losses on disposal of intangible assets, and (vi) depreciation expense, including certain losses on disposal of fixed assets. The deferred revenue balances as of May 31, 2015 and February 28, 2015 exclude the remaining acquisition date deferred revenue amounts assumed in connection with our acquisition of C2C Systems Limited. We believe adjusted EBITDA provides an indication of profitability from our operations, and provides a consistent measure of our performance from period to period.

Barracuda Networks, Inc.

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

(in thousands)

(Unaudited)

Three months ended May 31,

2015

2014

GAAP cash flows from operating activities

$  6,302

$  5,407

Purchase of property and equipment

(1,876)

(1,589)

Acquisition and other non-recurring charges (1)

886

385

Adjusted free cash flow (2)

$  5,312

$  4,203

(1)

Acquisition and Other Non-Recurring Charges. We exclude the cash flow impact 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 cash outflows allows us to better compare results from period to period in order to assess the ongoing operating results of our business. The cash flows include: (i) payments associated with an internal investigation of export control compliance and (ii) payments related to legal, valuation consulting and other expenses incurred in connection with acquisitions, as well as the payments under the terms of certain acquisition agreements and other non-recurring expenses.

(2)

Adjusted Free Cash Flow. We define adjusted free cash flow as cash flows from operating activities less the purchases of property and equipment plus the cash flow effect of acquisition and other non-recurring charges. We believe that adjusting free cash flow to exclude these charges allows us to better compare results from period to period in order to assess the ongoing free cash flow of our business. We believe adjusted free cash flow is an important liquidity measure that reflects the cash generated by the business after the purchase of property and equipment that can then be used for, among other things, strategic acquisitions, investments in the business and funding ongoing operations.

Barracuda Networks, Inc.

Reconciliation of GAAP Revenue to Gross Billings

(in thousands)

(Unaudited)

Three months ended May 31,

2015

2014

GAAP Revenue

$   77,974

$   66,209

Total deferred revenue, end of period

381,003

328,488

Less:  total deferred revenue, beginning of period

(372,862)

(313,157)

Deferred revenue adjustments

8,159

6,060

Total change in deferred revenue and adjustments

16,300

21,391

Gross billings (1)(2)

$   94,274

$   87,600

(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 May 31, 2015 and February 28, 2015 exclude the remaining acquisition date deferred revenue amounts assumed in connection with our acquisition of 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 May 31, 2014, 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.

Barracuda Networks, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three months ended May 31,

2015

2014

Operating activities

Net income (loss)

$     (3,832)

$           151

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization expense

2,174

2,087

Stock-based compensation expense

6,544

3,082

Excess tax benefits from equity compensation plans

(2,144)

(1,772)

Deferred income taxes

145

(3,254)

Other

337

12

Changes in operating assets and liabilities:

Accounts receivable, net

(2,339)

(5,094)

Inventories, net

(263)

730

Income taxes, net

2,289

1,024

Deferred costs

(1,379)

(2,282)

Other assets

283

(30)

Accounts payable 

(3,113)

(4,579)

Accrued payroll and related benefits

(61)

23

Other liabilities

(352)

(31)

Deferred revenue

8,013

15,340

Net cash provided by operating activities

6,302

5,407

Investing activities

Proceeds from the sale of marketable securities

3,203

-

Proceeds from the maturity of marketable securities

3,026

-

Purchase of marketable securities

(8,493)

-

Purchase of property and equipment

(1,876)

(1,589)

Purchase of investments in non-marketable equity and debt securities

-

(600)

Net cash used in investing activities

(4,140)

(2,189)

Financing activities

Proceeds from issuance of common stock

3,248

2,340

Taxes paid related to net share settlement of equity awards

(2,176)

(1,125)

Employee loans extended, net of repayment

(276)

(463)

Excess tax benefits from equity compensation plans

2,144

1,772

Repayment of note payable

(63)

(60)

Other

(156)

-

Net cash provided by financing activities

2,721

2,464

Effect of exchange rate changes on cash and cash equivalents

(194)

(3)

Net increase in cash and cash equivalents

4,689

5,679

Cash and cash equivalents at beginning of period

151,373

135,879

Cash and cash equivalents at end of period

$   156,062

$   141,558