Carbon Black Announces First Quarter 2019 Financial Results

Total revenue of $58.6 million up 21% year-over-year
Cloud revenue of $21.0 million up 80% year-over-year

WALTHAM, Mass., May 02, 2019 (GLOBE NEWSWIRE) --  Carbon Black, Inc. (NASDAQ: CBLK), a leader in cloud endpoint protection, today announced its financial results for the first quarter ended March 31, 2019.

“Carbon Black began 2019 with solid first quarter results highlighted by 24% total ARR growth and 80% growth in cloud revenue,” said Patrick Morley, President and Chief Executive Officer of Carbon Black. “We entered 2019 as a cloud-first company with a focused go-to-market strategy that leverages the powerful capabilities of our cloud platform, the CB Predictive Security Cloud® (PSC), to protect customers from today’s advanced cyberattacks.”

Morley continued, “We were very pleased with the initial market interest in our two newest PSC solutions, CB ThreatHunter and CB LiveOps.  These products provide customers with capabilities that we believe no other cloud EPP provider can match.  We are confident our expanded product portfolio will enable Carbon Black to be one of the primary beneficiaries of the endpoint security market’s shift to the cloud.”

First Quarter 2019 Financial Highlights

  • Revenue: Total revenue was $58.6 million in the first quarter fiscal 2019, an increase of 21% year-over-year. Subscription, license and support revenue was $56.3 million, an increase of 24% year-over-year, and services revenue was $2.3 million, a decrease of 26% year-over-year. 
  • Gross Profit: Gross profit was $45.5 million in the first quarter fiscal 2019, representing a 78% gross margin, compared to a gross margin of 79% in the year-ago period. Non-GAAP gross profit was $46 million, representing a 79% non-GAAP gross margin, compared to a margin of 80% in the year-ago period.
  • Loss from Operations: Loss from operations was $20.3 million in the first quarter fiscal 2019, compared to $17.8 million in the year-ago period. Non-GAAP loss from operations was $15.8 million in the first quarter fiscal 2019, compared to $11.1 million in the year-ago period.
  • Net Loss: Net loss was $19.7 million in the first quarter fiscal 2019. Net loss attributable to common stockholders was $19.7 million, or $0.28 per share based on 70.5 million weighted-average shares outstanding, in the first quarter fiscal 2019. In the year-ago period, net loss was $20.6 million and net loss attributable to common stockholders was $60.6 million, or $5.38 per share based on 11.3 million weighted-average shares outstanding.  Non-GAAP net loss was $15.2 million, or $0.22 per share based on 70.5 million weighted-average shares outstanding. This compares to $11.0 million, or $0.98 per share based on 11.3 million weighted-average shares outstanding, in the year-ago period.
  • Cash and Cash Flow: As of March 31, 2019, Carbon Black had $153.3 million in cash, cash equivalents and short-term investments. During the three months ended March 31, 2019, Carbon Black used ($13.9) million of cash in operations and ($0.7) million in capital expenditures and capitalized software development costs, leading to negative free cash flow of ($14.7) million, compared to negative free cash flow of ($2.6) million in the year-ago period.

A reconciliation of each of non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, non-GAAP net loss, non-GAAP net loss per share and free cash flow to the most directly comparable GAAP measure has been provided in the tables at the end of this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

First Quarter 2019 and Recent Business Highlights

  • ARR, which we define as the annualized value of all active subscription contracts as of the end of a period, was $226.0 million at the end of first quarter fiscal 2019, a 24% increase from the year-ago period.  The portion of ARR related to our cloud-based subscription contracts was $88.8 million, a 71% increase from the year-ago period.
  • Continued to grow our customer base, ending the quarter with 5,339 total customers, up 33% from the year-ago period, and 3,169 cloud customers, up 69% from the year-ago period. Growth was driven by demand for the CB Predictive Security Cloud and customer acquisition across a broad range of industries.
  • Announced a collaboration with Chronicle, an Alphabet cybersecurity company, to integrate Carbon Black’s endpoint security protection and predictive data modeling with Chronicle’s recently announced security analytics product, Backstory. The goal is to empower joint customers to investigate incidents, hunt for threats and respond to attacks within their networks with simpler, faster and more cost-effective security analytics.
  • Appointed Steve Webber as Chief Financial Officer.  Webber, a seasoned industry leader with 25 years of financial management and executive leadership, had previously served as COO and CFO of Backoffice Associates and CFO of Cynosure.  Webber spent the first 19 years of his career at EMC, including as CFO of its standalone subsidiary, Virtustream.

Business Outlook

Based on information as of today, May 2, 2019, Carbon Black is issuing the following financial guidance for the second quarter and full year fiscal 2019:

 Second Quarter Fiscal 2019Full Year Fiscal 2019
Total Revenue$ 59.0 million to $ 60.0 million$ 241.0 million to $ 244.0 million
Non-GAAP Loss from Operations($12.6) million to ($11.6) million($45.0) million to ($43.0) million
Non-GAAP Net Loss per Share($0.18) to ($0.16)($0.63) to ($0.60)

Carbon Black’s forward-looking non-GAAP loss from operations and non-GAAP net loss per share exclude estimates for stock-based compensation expense and amortization of acquired intangibles. Reconciliation of non-GAAP loss from operations and non-GAAP net loss per share guidance to the most directly comparable GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from these non-GAAP measures, particularly with respect to stock-based compensation expense. Stock-based compensation expense is directly impacted by unpredictable fluctuations in our stock price and by future hiring, turnover and retention needs, all of which are difficult to predict and subject to change. We expect the variability of the above charges to have a significant, and potentially unpredictable, impact on our future GAAP loss from operations and GAAP net loss per share.

Conference Call Information

Carbon Black will host a conference call today, May 2, 2019, at 5:00 p.m. (Eastern Time) to discuss its financial results, business outlook and other matters. A live webcast of the conference call will be available on the “Events” page of the Carbon Black investor relations website at https://investors.carbonblack.com/. To access the call by phone, dial (866) 394-4596 (domestic) or (210) 874-7849 (international). A replay of this conference call will be available for a limited time at (855) 859-2056 (domestic) or (404) 537-3406 (international) with passcode 1396732. A replay of the webcast will also be available for a limited time at https://investors.carbonblack.com/.

About Carbon Black

Carbon Black (NASDAQ: CBLK) is a leader in cloud endpoint protection dedicated to keeping the world safe from cyberattacks. The CB Predictive Security Cloud® (PSC) consolidates endpoint protection and IT operations into an extensible cloud platform that prevents advanced threats, provides actionable insight and enables businesses of all sizes to simplify operations. By analyzing billions of security events per day across the globe, Carbon Black has key insights into attackers’ behaviors, enabling customers to detect, respond to and stop emerging attacks.

More than 5,300 global customers, including 35 of the Fortune 100, trust Carbon Black to protect their organizations from cyberattacks. The company’s partner ecosystem features more than 500 MSSPs, VARs, distributors and technology integrations, as well as many of the world’s leading IR firms, who use Carbon Black’s technology in more than 500 breach investigations per year.

Carbon Black, CB Predictive Security Cloud, and CB LiveOps are registered trademarks or trademarks of Carbon Black, Inc. in the United States and/or other jurisdictions.

Forward-Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning our financial guidance for the second quarter and full year fiscal 2019, our predictions about the endpoint security market transition toward the cloud, our position to execute on our go-to-market strategy, the potential benefits of our collaboration with commercial partners, our introduction of future product enhancements and the potential advantages of those enhancements, and our ability to expand our leadership position and drive revenue growth. These forward-looking statements include, but are not limited to, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts and statements identified by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and are subject to a variety of assumptions, uncertainties, risks and factors that are beyond our control including, without limitation: our history of losses; failure (or the perceived failure) of our products to detect cyber attacks; our investments in new products and our ability to introduce new features, services or enhancements; the intense competition that we face in our market; our ability to effectively expand our sales and marketing organization; our ability to add new customers or increase sales to our existing customers; our ability to maintain, protect, enforce and enhance our intellectual property; the growth in the market for next-generation endpoint security solutions and adjacent security markets and our ability to penetrate those markets; our ability to manage our growth effectively and successfully recruit additional highly-qualified personnel; the price volatility of our common stock; and other risks detailed under the caption “Risk Factors” in  our Annual Report on Form 10-K filed on March 8, 2019, as updated by our subsequently filed quarterly reports on Form 10-Q  and our other SEC filings. Except as required by law, we undertake no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events, changes in expectations or otherwise.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as non-GAAP financial measures by the SEC: non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, non-GAAP net loss, non-GAAP net loss per share and free cash flow. Non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations and non-GAAP net loss exclude stock-based compensation expense, amortization of acquired intangibles, legal settlement amount, and, in the case of non-GAAP net loss, change in fair value of warrant liability and accretion of preferred stock to redemption value. Non-GAAP net loss per share is calculated by dividing non-GAAP net loss by the weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted. Carbon Black uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Carbon Black’s ongoing operational performance. Carbon Black 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 its financial results with other companies in Carbon Black’s industry, many of which present similar non-GAAP financial measures to investors.

Free cash flow represents net cash used in operating activities less capital expenditures and capitalized software development costs, if any. Carbon Black uses free cash flow to understand and evaluate its liquidity and to generate future operating plans. The exclusion of capital expenditures and amounts capitalized for software development facilitates comparisons of Carbon Black’s liquidity on a period-to-period basis and excludes items that it does not consider to be indicative of its liquidity. Carbon Black believes that free cash flow is a measure of liquidity that provides useful information to investors in understanding and evaluating the strength of its liquidity and future ability to generate cash that can be used for strategic opportunities or investing in its business.

Non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In particular, other companies may report non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, non-GAAP net loss, non-GAAP net loss per share, free cash flow or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, as presented below. This earnings press release and any future releases containing such non-GAAP reconciliations can also be found on the Investor Relations page of Carbon Black’s website at http://investors.carbonblack.com/.

Investor Relations Contact

Brian Denyeau
ICR for Carbon Black
646-277-1251
investorrelations@carbonblack.com

Media Relations Contact
Ryan Murphy
Carbon Black
Director of Global Communications
917-693-2788
rmurphy@carbonblack.com

 

CARBON BLACK, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

      
(Dollars in thousands, except share amounts)March 31,
2019
 December 31,
2018
Assets:    
Current assets:     
Cash and cash equivalents$ 72,880  $67,868 
Short-term investments  80,399   92,770 
Accounts receivable, net of allowances of $210 and $300, as of March 31, 2019 and December 31, 2018, respectively  43,870   62,555 
Prepaid expenses and other current assets  9,397   8,751 
Deferred commissions, current portion  13,680   13,078 
Total current assets  220,226   245,022 
Deferred commissions, net of current portion  25,397   25,076 
Property and equipment, net  13,253   14,370 
Operating lease right-of-use assets  14,931    
Intangible assets, net  2,204   2,529 
Goodwill  119,656   119,656 
Deferred tax assets  483   483 
Other long-term assets  560   601 
Total assets$ 396,710  $407,737 
      
Liabilities:     
Current liabilities:     
Accounts payable$ 4,846  $4,663 
Accrued expenses  13,901   20,669 
Deferred revenue  146,912   152,522 
Deferred rent  —   1,216 
Operating lease short-term liability  5,339    
Total current liabilities  170,998   179,070 
Deferred revenue, net of current portion  36,296   40,371 
Deferred rent, net of current portion  —   2,651 
Operating lease long-term liability  13,344    
Deferred tax liability  49   49 
Other long-term liabilities  28   42 
Total liabilities  220,715   222,183 
      
Stockholders' equity:     
Common stock, $0.001 par, 500,000,000 shares authorized:     
71,396,964 and 69,738,599 shares issued, and 71,341,560 and 69,683,195 shares outstanding, as of March 31, 2019 and December 31, 2018, respectively  71   70 
Treasury stock, at cost, 55,404 shares as of March 31, 2019 and December 31, 2018, respectively  (6)  (6)
Additional paid-in capital  733,129   723,051 
Accumulated other comprehensive loss  —   (49)
Accumulated deficit  (557,199)  (537,512)
Total stockholders’ equity  175,995   185,554 
Total liabilities and stockholders' equity$ 396,710  $407,737 



CARBON BLACK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

      
 Three Months Ended March 31, 
(In thousands, except share and per share amounts)2019  2018 
Revenue:     
Subscription, license and support$ 56,294  $45,391 
Services  2,262   3,043 
Total revenue  58,556   48,434 
Cost of revenue:     
Subscription, license and support  10,502   7,212 
Services  2,523   3,003 
Total cost of revenue  13,025   10,215 
Gross profit  45,531   38,219 
      
Operating expenses:     
Sales and marketing  39,410   30,678 
Research and development  18,377   14,922 
General and administrative  8,088   10,426 
Total operating expenses  65,875   56,026 
Loss from operations  (20,344)  (17,807)
Other income (expense), net     
Interest income  859   68 
Interest expense  (31)  (23)
Change in fair value of warrant liability  —   (2,881)
Other income (expense), net  (105)  120 
Total other income (expense), net  723   (2,716)
Loss before income taxes  (19,621)  (20,523)
Provision for income taxes  66   71 
Net loss  (19,687)  (20,594)
Accretion of preferred stock to redemption value  —   (40,039)
Net loss attributable to common stockholders$ (19,687) $(60,633)
      
      
Net loss per share attributable to common stockholders—basic and diluted$ (0.28) $(5.38)
Weighted-average common shares outstanding—basic and diluted  70,474,542   11,264,252 



CARBON BLACK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

      
 Three Months Ended March 31, 
(In thousands)2019  2018 
Cash flows from operating activities:     
Net loss$ (19,687) $(20,594)
Adjustments to reconcile net loss to net cash used in operating activities:     
Depreciation and amortization expense  2,124   1,905 
Stock-based compensation expense  4,204   2,389 
Provisions for doubtful accounts  (41)  19 
Non-cash interest expense  16   9 
Change in fair value of warrant liability  —   2,881 
Deferred income taxes  —   4 
Other non-cash income  (383)   
Changes in operating assets and liabilities:     
Accounts receivable  18,726   24,031 
Prepaid expenses and other assets  (893)  (1,861)
Deferred commissions  (923)  (494)
Accounts payable  236   25 
Accrued expenses  (7,482)  (2,305)
Deferred revenue  (9,686)  (6,703)
Deferred rent  —   (82)
Operating leases right-of-use assets  1,088    
Operating leases liability  (1,202)   
Other long-term liabilities  (13)  (1)
Net cash used in operating activities  (13,916)  (777)
Cash flows from investing activities:     
Purchases of short-term investments  (15,897)   
Sale and maturities of short-term investments  28,700    
Purchases of property and equipment  (577)  (1,495)
Capitalization of internal-use software costs  (160)  (293)
Net cash provided by (used in) investing activities  12,066   (1,788)
Cash flows from financing activities:     
Proceeds from exercise of stock options  6,546   1,065 
Payments of deferred financing costs  (47)  (47)
Taxes paid related to net share settlement of equity awards  (351)   
Proceeds from employee stock purchase plan  714    
Payments of initial public offering costs  —   (840)
Net cash provided by financing activities  6,862   178 
Net increase (decrease) in cash and cash equivalents  5,012   (2,387)
Cash and cash equivalents at beginning of period  67,868   36,073 
Cash and cash equivalents at end of period$ 72,880  $33,686 



CARBON BLACK, INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(UNAUDITED)

            
 Three Months Ended March 31, 
 2019 2018
(In thousands, except share and per share amounts)Amount % of Revenue Amount % of Revenue
GAAP total revenue$ 58,556   100.0 % $48,434  100.0 %
            
Reconciliation of cost of revenue           
GAAP cost of subscription, license and support$ 10,502   17.9 % $7,212  14.9 %
Less: Stock-based compensation  (167)  (0.3)   (136) (0.3) 
Less: Amortization of acquired intangibles  (275)  (0.5)   (330) (0.7) 
Non-GAAP cost of subscription, license and support$ 10,060   17.2   $6,746  13.9  
            
GAAP cost of services$ 2,523   4.3   $3,003  6.2  
Less: Stock-based compensation  (64)  (0.1)   (57) (0.1) 
Non-GAAP cost of services$ 2,459   4.2 % $2,946  6.1 %
            
Reconciliation of gross profit           
GAAP gross profit$ 45,531   77.8 % $38,219  78.9 %
Plus: Stock-based compensation  231   0.4    193  0.4  
Plus: Amortization of acquired intangibles  275   0.5    330  0.7  
Non-GAAP gross profit$ 46,037   78.6 % $38,742  80.0 %
            
Reconciliation of operating expenses           
GAAP sales and marketing$ 39,410   67.3 % $30,678  63.3 %
Less: Stock-based compensation  (1,838)  (3.1)   (936) (1.9) 
Less: Amortization of acquired intangibles  (10)  -    (22) -  
Non-GAAP sales and marketing$ 37,562   64.1   $29,720  61.4  
            
GAAP research and development$ 18,377   31.4   $14,922  30.8  
Less: Stock-based compensation  (1,044)  (1.8)   (564) (1.2) 
Less: Amortization of acquired intangibles  (40)  (0.1)   (39) (0.1) 
Non-GAAP research and development$ 17,293   29.5   $14,319  29.6  
            
GAAP general and administrative$ 8,088   13.8   $10,426  21.5  
Less: Stock-based compensation  (1,091)  (1.9)   (696) (1.4) 
Less: Legal settlement  -   -    (3,900) (8.1) 
Non-GAAP general and administrative$ 6,997   11.9 % $5,830  12.0 %
            
Reconciliation of loss from operations           
GAAP loss from operations$ (20,344)  (34.7)% $(17,807) (36.8)%
Plus: Stock-based compensation  4,204   7.2    2,389  4.9  
Plus: Legal settlement  -   -    3,900  8.1  
Plus: Amortization of acquired intangibles  325   0.6    391  0.8  
Non-GAAP loss from operations$ (15,815)  (27.0)% $(11,127) (23.0)%
            
Reconciliation of net loss           
GAAP net loss attributable to common stockholders$ (19,687)  (33.6)% $(60,633) (125.2)%
Plus: Accretion of preferred stock to redemption value  -   -    40,039  82.7  
GAAP net loss  (19,687)  (33.6)   (20,594) (42.5) 
Plus: Stock-based compensation  4,204   7.2    2,389  4.9  
Plus: Legal settlement  -   -    3,900  8.1  
Plus: Amortization of acquired intangibles  325   0.6    391  0.8  
Plus: Change in fair value of warrant liability  -   -    2,881  5.9  
Non-GAAP net loss$ (15,158)  (25.9)% $(11,033) (22.8)%
            



CARBON BLACK, INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(UNAUDITED)

            
 Three Months Ended March 31, 
 2019 2018
(In thousands, except share and per share amounts)Amount % of Revenue Amount % of Revenue
Reconciliation of net loss per share           
Net loss per share attributable to common stockholders, basic and diluted$ (0.28)    $(5.38)   
Plus: Accretion of preferred stock to redemption value  -      3.55    
Plus: Stock-based compensation  0.06      0.21    
Plus: Legal settlement  -      0.35    
Plus: Amortization of acquired intangibles  -      0.03    
Plus: Change in fair value of warrant liability  -      0.26    
Non-GAAP net loss per share, basic and diluted$ (0.22)    $(0.98)   
            
Weighted average shares used in GAAP and non-GAAP net loss per share, basic and diluted  70,474,542      11,264,252    
            
Computation of free cash flow           
Net cash used in operating activities$ (13,916)    $(777)   
Less: Purchases of property and equipment  (577)     (1,495)   
Less: Capitalization of internal-use software costs  (160)     (293)   
Free cash flow$ (14,653)    $(2,565)   
            


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