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TMCNet:  Cyan Reports Fiscal Year and Fourth Quarter 2013 Financial Results

[February 11, 2014]

Cyan Reports Fiscal Year and Fourth Quarter 2013 Financial Results

PETALUMA, Calif. --(Business Wire)--

Cyan (NYSE: CYNI), a leading provider of software-defined networking (SDN) and packet-optical solutions for network operators, today announced financial results for its year and fourth quarter ended�December 31, 2013.

Revenue in 2013 grew 22 percent to $116.6 million, compared with $95.9 million in 2012. GAAP net loss for 2013 was $40.7 million, or $1.32 per share, compared with a net loss of $16.6 million, or $6.60 per share in 2012. Non-GAAP net loss for 2013 was $30.9 million, or $1.00 per share, compared with non-GAAP net loss of $9.2 million, or $3.64 per share in 2012.

"Overall, 2013 was a very important year for Cyan as our packet-optical technology and SDN software was deployed as part of customer network transformation efforts around the globe," said�Mark Floyd, Cyan's chairman and chief executive officer. "We are proud to be at the forefront of this transformation, and while we are still in the very early stages, we are excited about the traction we are gaining with our Z-Series packet-optical and Blue Planet SDN solutions."

Revenue for the fourth quarter of 2013 was $20.9 million compared with $29.8 million�in the fourth quarter of 2012 and $37.7 million�for the third quarter of 2013. GAAP net loss for the fourth quarter was�$13.7 million, or�$0.29�per share, compared with a net loss of�$8.0 million, or�$3.13�per share, in the same period last year, and a net loss of�$8.6 million, or�$0.19�per share, for the third quarter of 2013.

On a non-GAAP basis, Cyan's net loss for the fourth quarter was�$11.5 million, or�$0.25�per share. This compares to a non-GAAP net loss of�$3.5 million, or�$1.37�per share, for the same period last year and to a non-GAAP net loss of�$6.4 million, or�$0.14�per share, for the third quarter of 2013. Both GAAP and non-GAAP per share net loss figures for the fourth quarter are based on 46.4 million basic weighted average shares outstanding.

Non-GAAP results for the year ended December 31, 2013 exclude the effect of stock-based compensation and the effects of preferred stock warrants that were converted in connection with our initial public offering and for the fourth quarter exclude the effect of stock-based compensation. In connection with its IPO in May 2013, the company issued 8.9 million shares of common stock and 34.7 million shares of preferred stock converted into common stock. Please refer to the attached financial statements for additional non-GAAP information and a reconciliation of GAAP to non-GAAP results as well as information regarding weighted average shares outstanding in each period.

Floyd continued, "Our fourth quarter results were impacted by cautious customer order patterns and a significantly greater than expected decline in revenue from our largest customer. However, we achieved a number of milestones in the fourth quarter that demonstrate the continued adoption of our Z-Series packet-optical and Blue Planet SDN and NFV platforms, including delivering the first software controlled and fully automated carrier SDN network in a multi-vendor network to a leading carrier in Europe."

Highlights

  • Cyan's Blue Planet SDN platform and Z-Series packet-optical hardware were selected by the Jeollanam-Do province in South Korea to transform its carrier Ethernet network. The network will deliver e-government applications including Internet, VoIP and video conferencing serving over two million people living in the province.
  • Cyan partnered with its customer DukeNet to demonstrate SDN orchestration across the WAN and data center in a live multi-vendor environment.
  • Cyan's Blue Planet SDN and NFV Orchestration Platform was recognized for its innovation and market traction with two industry awards:
    • "SDN Innovation of the Year" by the Telecom Asia 2013 Readers' Choice & Innovation Awards on December 5, 2013;
    • "Best New Telecom Product" by Light Reading at its annual Leading Lights on October 12, 2013.

Conference Call

Cyan will host a conference call for analysts and investors to discuss its fourth quarter and full 2013 results as well as guidance for its first quarter of 2014 today at�2:00 p.m. Pacific time/5:00 p.m. Eastern time. To access the live call, please dial 1-877-941-1427 (US or�Canada) or 1-480-629-9664 (international) and use the password: Cyan. A telephonic replay of the call will be available from approximately two hours after the call until�11:59 pm�on�February 25, 2014, and can be accessed by dialing 1-800-406-7325 or 1-303-590-3030 and entering passcode 4658025#. A live audio webcast of the conference call also will be available from the Investors section of the company's website,�www.cyaninc.com. Following the webcast, an archived version will be available on the website for 90 days.

Use of Non-GAAP Financial Information

To supplement our financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP financial measures, including non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, non-GAAP net loss and non-GAAP net loss per share. We use this information in managing our business and believe the non-GAAP data are helpful in understanding our past financial performance and future results. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, "Condensed Consolidated Reconciliation of GAAP to Non-GAAP Results." Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. As noted, non-GAAP results exclude the effect of stock-based compensation and the effects of preferred stock warrants that were converted in connection with our initial public offering. We use stock-based compensation to attract and retain employees and executives with the goals of aligning their interests with those of our stockholders and long-term employee retention. As a result, we exclude stock-based compensation expense from our non-GAAP metrics given that it varies for reasons that are generally unrelated to operational decisions and performance in any particular period. In addition, prior to our initial public offering in May 2013, we incurred preferred stock warrant expenses. Upon completion of our initial public offering, our preferred stock warrants were converted to common stock, and we no longer incurred expenses associated with the warrants. We have excluded these expenses from our non-GAAP metrics given that they fluctuated based on our valuation as a private company prior to going public and were discontinued upon completion of our IPO.

Forward-Looking Statements

This press release contains forward-looking statements, including but not limited to statements relating to Cyan's expected future market acceptance and traction of our Z-series and Blue Planet solutions, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and involve a number of risks and uncertainties. Actual results and timing of events could differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: fluctuations in demand for our products and services, particularly as it relates to large sales to existing and new customers; fluctuations in the price for our products and services; the adoption rate of our products, particularly our Blue Planet solution; our ability to compete in our industry; future growth in our international sales and our international expansion; and other risks and uncertainties related to our business. Further information on these risks and other factors that could affect our financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time, including our Form 10-K that will be filed for the year ended December 31, 2014 and our Form 10-Q that we filed for the quarter ended September 30, 2013. These documents are available on the SEC Filings section of the Investor section of our website at investor.cyaninc.com. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we undertake no obligation to revise or update these forward-looking statements in light of new information or future events, other than as required by law. Results reported herein should not be considered as an indication of future performance.

About Cyan

Cyan enables network transformation. The company's software-defined network (SDN) solutions deliver orchestration, agility, and scale to networks that, until now, have been static and hardware driven. Serving carriers, enterprises, governments, and data center operators globally, Cyan's open platforms provide multi-vendor control and visibility to network operators, making service delivery more efficient and profitable. Cyan solutions include Blue Planet SDN software, Z-Series packet-optical transport platforms, and Cyan Pro professional services. For more information, please visit www.cyaninc.com or follow Cyan on Twitter at http://twitter.com/CyanNews.



Cyan, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended December 31, Twelve Months Ended December 31,
2013 2012 2013 2012
Revenue $ 20,885 $ 29,773 $ 116,582 $ 95,872
Cost of revenue 12,434 17,820 68,376 57,315
Gross profit 8,451 11,953 48,206 38,557
Operating expenses:
Research and development 7,993 6,142 32,609 18,447
Sales and marketing 10,807 8,064 40,102 25,243
General and administrative 3,169 2,168 13,082 6,055
Total operating expenses 21,969 16,374 85,793 49,745
Loss from operations (13,518 ) (4,421 ) (37,587 ) (11,188 )
Interest expense (50 ) (13 ) (367 ) (33 )
Other income (expense), net (40 ) (3,569 ) (2,635 ) (5,340 )
Total other income (expense), net (90 ) (3,582 ) (3,002 ) (5,373 )
Loss before provision for income taxes (13,608 ) (8,003 ) (40,589 ) (16,561 )
Provision for income taxes 77 13 143 40
Net loss $ (13,685 ) $ (8,016 ) $ (40,732 ) $ (16,601 )
Basic and diluted net loss per share $ (0.29 ) $ (3.13 ) $ (1.32 ) $ (6.60 )
Weighted-average number of shares used in computing basic and diluted net loss per share (1) 46,412 2,563 30,836 2,515

(1) In connection with its IPO in 2013, the company issued 8.9 million shares of common stock and 34.7 million shares of preferred stock converted into common stock. Weighted average shares for the three and twelve months ended December 31, 2013 include the weighted average effect of common shares issued and preferred stock converted into common stock pursuant to our initial public offering. The calculation also takes into account the effect of stock options exercised during the respective periods.

Cyan, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,

2013

December 31,

2012

Assets Current assets: Cash and cash equivalents $ 32,509 $ 20,221 Marketable securities 31,639 - Accounts receivable, net 14,558 19,200 Short-term lease receivable 604 - Inventories 20,746 14,049 Deferred costs 8,286 8,228 Prepaid expenses and other � 1,378 � � 930 � Total current assets 109,720 62,628 Property and equipment, net 11,155 6,485 Other assets � 645 � � 1,676 � Total assets $ 121,520 � $ 70,789 � � Liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit) � Current liabilities: Accounts payable $ 8,474 $ 11,842 Accrued liabilities 3,786 3,636 Accrued compensation 4,895 3,743 Revolving loan - 7,563 Term loan, current portion 1,604 - Deferred revenue 17,516 15,597 Preferred stock warrant liability - 6,254 Other liabilities � 849 � � 74 � Total current liabilities 37,124 48,709 Term loan, non-current portion 3,396 5,000 Deferred revenue 1,577 1,820 Deferred rent � 486 � � 182 � Total liabilities 42,583 55,711 � Redeemable convertible preferred stock - 98,133 � Stockholders' equity (deficit): Common stock and additional paid-in capital 206,305 3,514 Accumulated other comprehensive loss (86 ) (19 ) Accumulated deficit � (127,282 ) � (86,550 ) Total stockholders' equity (deficit) � 78,937 � � (83,055 ) Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit) $ 121,520 � $ 70,789 � �

Cyan, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

� � Twelve Months Ended December 31, 20132012 Operating activities � Net loss $ (40,732 ) $ (16,601 ) � Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,721 1,801 Stock-based compensation 7,249 2,097 Change in fair value for warrants 2,602 5,354 Changes in operating assets and liabilities: Accounts receivable 4,642 (12,674 ) Lease receivable (604 ) - Inventories (6,697 ) (8,162 ) Deferred costs (58 ) (5,924 ) Prepaid expenses and other assets (448 ) (586 ) Accounts payable (3,230 ) 6,483 Accrued liabilities 826 1,133 Accrued compensation 1,152 2,337 Deferred revenue 1,676 12,198 Deferred rent � 344 � � 81 � Net cash used in operating activities � (30,557 ) � (12,463 ) � Investing activities � Purchases of property and equipment (6,111 ) (5,698 ) Purchase of available for sale securities (31,639 ) - Purchase of investment in convertible securities � (500 ) � - � Net cash used in investing activities � (38,250 ) � (5,698 ) � Financing activities � Proceeds from initial public offering, net of issuance costs 87,320 - Proceeds from issuance of common stock 1,403 116 Borrowings under revolving loan and term loan facilities - 12,563 Repayments of borrowings � (7,563 ) � (45 ) Net cash provided by financing activities � 81,160 � � 12,634 � � Effect of exchange rate changes on cash and cash equivalents � (65 ) � 8 � Net increase (decrease) in cash and cash equivalents 12,288 (5,519 ) Cash and cash equivalents at beginning of period � 20,221 � � 25,740 � Cash and cash equivalents at end of period $ 32,509 � $ 20,221 � �

Cyan, Inc.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

� � Three Months Ended Twelve Months Ended December 31, 2013September 30, 2013December 31, 2012 December 31, 2013December 31, 2012 Reconciliation of Gross Profit: US GAAP as reported $ 8,451 $ 15,089 $ 11,953 $ 48,206 $ 38,557 Adjustments: Stock-Based Compensation � 40 � � 61 � � 32 � � 160 � � 57 � Non-GAAP Gross Profit $ 8,491 � $ 15,150 � $ 11,985 � $ 48,366 � $ 38,614 � � Reconciliation of Gross Margin: US GAAP as reported 40.5 % 40.0 % 40.1 % 41.3 % 40.2 % Adjustments: Stock-Based Compensation � 0.2 % � 0.2 % � 0.2 % � 0.2 % � 0.1 % Non-GAAP Gross Margin � 40.7 % � 40.2 % � 40.3 % � 41.5 % � 40.3 % � Reconciliation of Research and Development expenses: US GAAP as reported $ 7,993 $ 9,220 $ 6,142 $ 32,609 $ 18,447 Adjustments: Stock-Based Compensation � 664 � � 773 � � 361 � � 2,348 � � 745 � Non-GAAP Research and Development expense $ 7,329 � $ 8,447 � $ 5,781 � $ 30,261 � $ 17,702 � � Reconciliation of Sales and Marketing expenses: US GAAP as reported $ 10,807 $ 10,518 $ 8,064 $ 40,102 $ 25,243 Adjustments: Stock-Based Compensation � 721 � � 571 � � 284 � � 2,165 � � 656 � Non-GAAP Sales and Marketing expense $ 10,086 � $ 9,947 � $ 7,780 � $ 37,937 � $ 24,587 � � Reconciliation of General and Administrative expenses: US GAAP as reported $ 3,169 $ 3,895 $ 2,168 $ 13,082 $ 6,055 Adjustments: Stock-Based Compensation � 726 � � 793 � � 257 � � 2,576 � � 639 � Non-GAAP General and Administrative expense $ 2,443 � $ 3,102 � $ 1,911 � $ 10,506 � $ 5,416 � � Reconciliation of Operating Expenses: US GAAP as reported $ 21,969 $ 23,633 $ 16,374 $ 85,793 $ 49,745 Adjustments: Stock-Based Compensation � 2,111 � � 2,137 � � 902 � � 7,089 � � 2,040 � Non-GAAP Operating Expenses $ 19,858 � $ 21,496 � $ 15,472 � $ 78,704 � $ 47,705 � � Reconciliation of Operating profit (loss): US GAAP as reported $ (13,518 ) $ (8,544 ) $ (4,421 ) $ (37,587 ) $ (11,188 ) Adjustments: Stock-Based Compensation � 2,151 � � 2,198 � � 934 � � 7,249 � � 2,097 � Non-GAAP Operating profit (Loss) $ (11,367 ) $ (6,346 ) $ (3,487 ) $ (30,338 ) $ (9,091 ) � Reconciliation of Operating Margin: US GAAP as reported -64.7 % -22.7 % -14.8 % -32.2 % -11.7 % Adjustments: Stock-Based Compensation � 10.3 % � 5.8 % � 3.1 % � 6.2 % � 2.2 % Non-GAAP Operating Margin � -54.4 % � -16.9 % � -11.7 % � -26.0 % � -9.5 % �

Cyan, Inc.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

� � Three Months Ended Twelve Months Ended December 31, 2013September 30, 2013December 31, 2012 December 31, 2013December 31, 2012 � Reconciliation of Net income (Loss): US GAAP as reported $ (13,685 ) $ (8,611 ) $ (8,016 ) $ (40,732 ) $ (16,601 ) Adjustments: Stock-Based Compensation 2,151 2,198 934 7,249 2,097 Preferred Stock Warrant Expense � - � � - � � 3,564 � � 2,602 � � 5,354 � Non-GAAP Net Income (Loss) $ (11,534 ) $ (6,413 ) $ (3,518 ) $ (30,881 ) $ (9,150 ) � Reconciliation of Net income (loss) per share, basic and diluted: US GAAP as reported (1) $ (0.29 ) $ (0.19 ) $ (3.13 ) $ (1.32 ) $ (6.60 ) Adjustments: Stock-Based Compensation 0.04 0.05 0.36 0.24 0.83 Preferred Stock Warrant Expense � - � � - � � 1.40 � � 0.08 � � 2.13 � Non-GAAP Net Income (Loss) per share, basic and diluted (1) $ (0.25 ) $ (0.14 ) $ (1.37 ) $ (1.00 ) $ (3.64 ) �

(1) In connection with its IPO in 2013, the company issued 8.9 million shares of common stock and 34.7 million shares of preferred stock converted into common stock. Weighted average shares for the three and twelve months ended December 31, 2013 include the weighted average effect of common shares issued and preferred stock converted into common stock pursuant to our initial public offering. The calculation also takes into account the effect of stock options exercised during the respective periods.


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