8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

October 9, 2014

BARRACUDA NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-36162	83-0380411
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3175 S. Winchester Blvd.

Campbell, California 95008

(Address of principal executive offices, including zip code)

(408) 342-5400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On October 9, 2014, Barracuda Networks, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended August 31, 2014. In the press release, the Company also announced that it would be holding a conference call on October 9, 2014 to discuss its financial results for the quarter ended August 31, 2014. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

This information is intended to be furnished under Item 2.02 of Form 8-K, “Results of Operations and Financial Condition” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.	Description
99.1	Press release issued by Barracuda Networks, Inc., dated October 9, 2014

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

BARRACUDA NETWORKS, INC.
By:	/s/ Diane Honda
	Diane Honda Vice President, General Counsel & Secretary

Date: October 9, 2014

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release issued by Barracuda Networks, Inc., dated October 9, 2014

EX-99.1

Exhibit 99.1

Press Release issued October 9, 2014

Barracuda Reports Record Second Quarter Fiscal 2015 Results

• Q2 gross billings up 18% year-over-year to a record $89 million

• Total revenue grew 19% year-over-year to $69 million in Q2

• Adjusted EBITDA grew 76% year-over-year to $20 million

• Adjusted free cash flow of $14 million, representing 45% growth year-over-year

• Total active subscribers exceed 225,000

CAMPBELL, Calif., October 9, 2014 – Barracuda Networks, Inc. (NYSE: CUDA), a leading provider of cloud-connected security and storage solutions, today announced results for its second quarter of fiscal 2015, which ended August 31, 2014.

Billings & Revenue: For the second quarter of fiscal 2015, gross billings grew 18% to $89.0 million, up from $75.6 million in the second quarter of fiscal 2014. Total revenue increased 19% to $68.7 million, up from $57.8 million in the second quarter of fiscal 2014. Appliance revenue in the second quarter of fiscal 2015 increased to $20.7 million compared to the second quarter of fiscal 2014, and recurring subscription revenue grew to $48.0 million in the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014, representing 70% of total revenue.

Net Income: GAAP net income in the second quarter of fiscal 2015 was $0.7 million, or $0.01 earnings per share, based on a diluted share count of 53.7 million. Non-GAAP net income for the second quarter of fiscal 2015 was $4.6 million, or $0.08 earnings per share. Non-GAAP net income excludes $3.7 million in stock-based compensation expense, $2.2 million in income tax benefit of non-GAAP exclusions, $1.1 million in amortization of intangibles, $0.6 million in acquisition and other non-recurring charges, and $0.6 million in other income and expense. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“We are pleased to report another quarter of strong performance on both our top and bottom line,” said BJ Jenkins, president and CEO. “In the second quarter, we added more than 11,250 new active subscribers, bringing our total active subscribers to more than 225,000. Our results reflect our continued traction in our faster-growing categories of storage and network and application security. We recently introduced a number of new products and feature enhancements to our portfolio, which we believe will strengthen our position as a leading provider of security and storage solutions that simplify the lives of IT professionals.”

“We had strong financial performance in the second quarter, with record results in gross billings, balanced with a strong bottom line,” said David Faugno, CFO. “In the quarter Adjusted EBITDA was $20 million, or 29% of total revenue. On a trailing 12-month basis, adjusted free cash flow was $46 million, growing 28% year-over-year.”

Recent Company Highlights

• Product Portfolio Expansion – Acquired C2C Systems to expand information management and archiving solution portfolio to include software-based archiving, eDiscovery and PST management.

• Storage Product Innovation – Launched Data Production Plus initiative which includes new versions and updates across entire storage portfolio, including: Barracuda Backup version 6.0 featuring faster recovery times and Local Control to administer and replicate data in a private environment; Barracuda Message Archiver version 4.0 to extend archive capacity to the Barracuda Cloud and expand storage and compute resources with stackable appliances; Barracuda Copy Site Server to enable hybrid onsite and cloud-based file sync and share; Barracuda SignNow version 4.0 with integrations to Salesforce, Office365 and Google Apps; and a new SignNow appliance to support deployments in both cloud and on-premises environments. Announced the Barracuda Backup 290 targeted for branch offices looking to back up local data, and doubled the storage capacity of the Barracuda Backup 390.

• Security Product Innovation – Released a number of new product updates across the security portfolio, including: Barracuda NG Firewall version 6.0 with Advanced Threat Detection and extended secure mobile device access; and Barracuda Spam Firewall version 6.1 featuring bulk categorization and advanced malware protection.

• Public Cloud Momentum – Announced the Barracuda Web Application Firewall and Barracuda NG Firewall Azure Certified designation with availability in the Microsoft Azure Gallery; Barracuda Spam Firewall availability on Microsoft Azure; and Barracuda Spam Firewall annual pricing availability on Amazon Web Services.

• Industry Recognition – Received a number of industry accolades and achievements, including: Volume leader in Content Security appliances for Q2 CY2014 by IDC; Number one vendor in unit volume for integrated PBBA and top five in overall revenue for total PBBA by IDC for Q2 CY2014; Highest Security Effectiveness score for Barracuda Web Application Firewall in NSS Labs Web Application Firewall group test; Five Star Review and Best Buy rating from SC Magazine for Barracuda Spam Firewall; and Best Security Hardware vendor by ChannelPro Network’s 2014 Readers’ Choice awards.

Conference Call Information

Barracuda will host a conference call and corresponding live webcast at 2:00 p.m. PT today. To access the conference call, dial 1-877-201-0168 for the U.S. and Canada or +1-647-788-4901 for international callers, and enter conference ID 95144768#. The webcast will be available live on the investor relations section of the Company’s website at https://investors.barracuda.com, and via replay beginning approximately two hours after the completion of the call for a period of one year. An audio replay of the call will be available to investors beginning at approximately 5:00 p.m. PT today through October 14, 2014 by dialing 1-855-859-2056 in the U.S. and Canada, or +1-404-537-3406 for international callers, and entering conference ID 95144768#. Additional information can be found in an accompanying supplemental investor slide presentation located at https://investors.barracuda.com.

Forward-Looking Statements

This announcement contains forward-looking statements related to future product performance and potential results from new initiatives that involve risks and uncertainties, including statements regarding the Company’s expectations regarding financial performance and the potential impact of our new and updated products. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including, but not limited to: fluctuations in demand for the Company’s products and services; a highly competitive business environment for network security and storage solutions; the Company’s effectiveness in controlling expenses, the possibility that the Company might experience delays in the development of new technology and products; customer response to its new technology and products; risks related to pending or future litigation and regulatory matters; and a dependency on third parties for certain components of the Company’s products. The Company undertakes no obligation to update the forward-looking information in this release. More information about potential factors that could affect the Company’s business and financial results is included in its filings with the Securities and Exchange Commission, including, without limitation, under the captions: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors,” which are on file with the Securities and Exchange Commission.

Non-GAAP Financial Measures

Barracuda provides all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement our consolidated financial statements presented in accordance with GAAP, we are also providing with this press release non-GAAP net income, non-GAAP operating income, adjusted EBITDA and adjusted free cash flow. In preparing our non-GAAP information, we have excluded certain amounts as set forth in the attached financial tables and footnotes. We believe that excluding these items provides both management and investors with additional insight into our current operations and the trends affecting the Company. In particular, management finds it useful to exclude these items in order to more readily correlate the Company’s operating activities with the Company’s ability to generate cash from operations. Accordingly, management uses these non-GAAP measures, along with the comparable GAAP information, in evaluating our historical performance and in planning our future business activities. Please note that our non-GAAP measures may be different than those used by other companies. The additional non-GAAP financial information we present should be considered in conjunction with, and not as a substitute for, our financial information presented in accordance with GAAP. All forward-looking non-GAAP financial measures discussed on our earnings call excludes certain items such as stock-based compensation, amortization of intangibles and other non-recurring adjustments. While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis, the company has provided a reconciliation of GAAP to non-GAAP financial measures in the financial statement tables for three and six months ended August 31, 2014 non-GAAP results included in this press release. We have provided a non-GAAP reconciliation of the Condensed Consolidated Statement of Operations for the periods presented in this release, which exclude certain amounts as set forth in the attached financial tables and footnotes for these periods. These measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures for comparable financial information and understanding of the Company’s ongoing performance as a business. Barracuda uses both GAAP and non-GAAP measures to evaluate and manage its operations.

About Barracuda Networks Inc. (NYSE: CUDA)

Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda’s customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security. For additional information, please visit http://www.barracuda.com.

Barracuda Networks, Barracuda and the Barracuda Networks logo are registered trademarks or trademarks of Barracuda Networks, Inc. in the US and other countries.

Contacts:

Investor Relations: Adam Carson; +1-408-342-5480; ir@barracuda.com

Corporate Communications: Mary Catherine Petermann; +1 404-307-6290; mc@barracuda.com

Barracuda Networks, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

	August 31, 2014			February 28, 2014
Assets
Current assets:
Cash and cash equivalents	$	156,559		$	135,879
Accounts receivable, net of allowance for doubtful accounts		36,739			27,836
Inventories		5,183			5,648
Deferred costs		28,157			25,707
Deferred income taxes		33,840			30,156
Other current assets		5,637			4,900
Total current assets		266,115			230,126
Property and equipment, net		22,230			20,558
Deferred costs, non-current		26,425			24,572
Deferred income taxes, non-current		31,198			28,515
Other non-current assets		2,033			1,851
Intangible assets, net		10,652			8,420
Goodwill		41,025			36,014
Total assets	$	399,678		$	350,056
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	12,708		$	13,743
Accrued payroll and related benefits		8,048			8,494
Other accrued liabilities		10,473			9,374
Deferred revenue		187,153			167,562
Deferred income taxes		291			260
Note payable		244			237
Total current liabilities		218,917			199,670
Long-term liabilities:
Deferred revenue, non-current		156,525			145,595
Deferred income taxes, non-current		951			84
Note payable, non-current		4,510			4,635
Other long-term liabilities		7,664			5,727
Stockholders’ equity (deficit):
Common stock		52			52
Additional paid-in capital		295,003			278,551
Accumulated other comprehensive loss		(1,392	)		(817	)
Accumulated deficit		(282,552	)		(283,441	)
Total stockholders’ equity (deficit)		11,111			(5,655	)
Total liabilities and stockholders’ equity (deficit)	$	399,678		$	350,056

Barracuda Networks, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share information)

(Unaudited)

	Three months ended August 31,						Six months ended August 31,
	2014			2013			2014			2013
Revenue:
Appliance	$	20,676		$	17,906		$	41,512		$	35,409
Subscription		47,976			39,884			93,349			78,658
Total revenue		68,652			57,790			134,861			114,067
Cost of revenue		14,044			13,407			28,450			26,481
Gross profit		54,608			44,383			106,411			87,586
Operating expenses:
Research and development		13,826			11,638			26,778			22,480
Sales and marketing		31,031			28,392			60,510			57,228
General and administrative		8,624			7,827			17,188			14,505
Total operating expenses		53,481			47,857			104,476			94,213
Income (loss) from operations		1,127			(3,474	)		1,935			(6,627	)
Other income (expense), net		(681	)		7			(738	)		(450	)
Income (loss) before income taxes and non-controlling interest		446			(3,467	)		1,197			(7,077	)
Benefit (provision) for income taxes		292			1,089			(308	)		2,136
Consolidated net income (loss)		738			(2,378	)		889			(4,941	)
Net loss attributable to non-controlling interest		—			203			—			362
Net income (loss) attributable to Barracuda Networks, Inc.	$	738		$	(2,175	)	$	889		$	(4,579	)
Net income (loss) per share attributable to Barracuda Networks, Inc.:
Basic	$	0.01		$	(0.08	)	$	0.02		$	(0.16	)
Diluted	$	0.01		$	(0.08	)	$	0.02		$	(0.16	)
Weighted-average shares used to compute net income (loss) per share attributable to Barracuda Networks, Inc.:
Basic		51,667			28,182			51,412			28,141
Diluted		53,743			28,182			53,675			28,141

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands)

(Unaudited)

	Three months ended August 31,				Six months ended August 31,
	2014		2013		2014		2013
GAAP cost of revenue	$	14,044	$	13,407	$	28,450	$	26,481
Amortization of intangible assets (1)		673		1,138		1,346		2,128
Depreciation expense (2)		756		551		1,428		1,029
Stock-based compensation expense (3)		73		43		125		88
Non-GAAP cost of revenue	$	12,542	$	11,675	$	25,551	$	23,236
GAAP sales and marketing expense	$	31,031	$	28,392	$	60,510	$	57,228
Amortization of intangible assets (1)		438		470		741		918
Depreciation expense (2)		38		59		77		116
Stock-based compensation expense (3)		821		366		1,403		700
Non-GAAP sales and marketing expense	$	29,734	$	27,497	$	58,289	$	55,494
GAAP research and development expense	$	13,826	$	11,638	$	26,778	$	22,480
Depreciation expense (2)		156		137		307		264
Stock-based compensation expense (3)		902		635		1,650		1,265
Acquisition and other non-recurring charges (4)		383		375		755		500
Non-GAAP research and development expense	$	12,385	$	10,491	$	24,066	$	20,451
GAAP general and administrative expense	$	8,624	$	7,827	$	17,188	$	14,505
Amortization of intangible assets (1)		—		10		—		17
Depreciation expense (2)		274		124		523		262
Stock-based compensation expense (3)		1,940		1,587		3,640		3,075
Acquisition and other non-recurring charges (4)		257		302		274		367
Non-GAAP general and administrative expense	$	6,153	$	5,804	$	12,751	$	10,784
GAAP total expense	$	67,525	$	61,264	$	132,926	$	120,694
Amortization of intangible assets (1)		1,111		1,618		2,087		3,063
Depreciation expense (2)		1,224		871		2,335		1,671
Stock-based compensation expense (3)		3,736		2,631		6,818		5,128
Acquisition and other non-recurring charges (4)		640		677		1,029		867
Non-GAAP total expense	$	60,814	$	55,467	$	120,657	$	109,965
Depreciation expense (2)		1,224		871		2,335		1,671
Non-GAAP total expense including depreciation	$	62,038	$	56,338	$	122,992	$	111,636

Barracuda Networks, Inc.

Reconciliation of Selected GAAP to Non-GAAP Financial Measures

(in thousands, except per share information)

(Unaudited)

	Three months ended August 31,						Six months ended August 31,
	2014			2013			2014			2013
GAAP operating income (loss)	$	1,127		$	(3,474	)	$	1,935		$	(6,627	)
Amortization of intangible assets (1)		1,111			1,618			2,087			3,063
Stock-based compensation expense (3)		3,736			2,631			6,818			5,128
Acquisition and other non-recurring charges (4)		640			677			1,029			867
Non-GAAP operating income	$	6,614		$	1,452		$	11,869		$	2,431
GAAP net income (loss) attributable to Barracuda Networks, Inc.	$	738		$	(2,175	)	$	889		$	(4,579	)
Amortization of intangible assets (1)		1,111			1,618			2,087			3,063
Stock-based compensation expense (3)		3,736			2,631			6,818			5,128
Acquisition and other non-recurring charges (4)		640			677			1,029			867
Income tax effect of non-GAAP exclusions (5)		(2,243	)		(1,484	)		(3,186	)		(2,708	)
Other income adjustments (6)		569			(191	)		516			172
Non-controlling interest (7)		—			(203	)		—			(362	)
Non-GAAP net income	$	4,551		$	873		$	8,153		$	1,581
Non-GAAP diluted earnings per share (8)	$	0.08		$	0.02		$	0.15		$	0.03
Weighted-average shares used to compute diluted earnings per share		53,743			46,822			53,675			46,582

(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, 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 August 31,						Six months ended August 31,
	2014			2013			2014			2013
GAAP net income (loss) attributable to Barracuda Networks, Inc.	$	738		$	(2,175	)	$	889		$	(4,579	)
Deferred revenue, end of period		342,663			286,792			342,663			286,792
Less: Deferred revenue, beginning of period		(328,488	)		(274,444	)		(313,157	)		(261,243	)
Less: Deferred costs, end of period		(54,582	)		(46,058	)		(54,582	)		(46,058	)
Deferred costs, beginning of period		52,549			42,556			50,279			39,470
Other expense (income), net		681			(7	)		738			450
Provision (benefit) for income taxes		(292	)		(1,089	)		308			(2,136	)
Acquisition and other non-recurring charges		640			677			1,029			867
Stock-based compensation expense		3,736			2,631			6,818			5,128
Amortization of intangible assets		1,111			1,618			2,087			3,063
Depreciation expense		1,224			871			2,335			1,671
Adjusted EBITDA (1)	$	19,980		$	11,372		$	39,407		$	23,425

(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 (income), net, (ii) provision (benefit) 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 balance as of August 31, 2014 excludes the deferred revenue assumed on 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 August 31,						Six months ended August 31,
	2014			2013			2014			2013
GAAP cash flows from operating activities	$	15,475		$	11,889		$	20,882		$	12,083
Purchase of property and equipment		(2,186	)		(2,866	)		(3,775	)		(4,529	)
Acquisition and other non-recurring charges (1)		390			393			775			3,469
Adjusted free cash flow (2)	$	13,679		$	9,416		$	17,882		$	11,023

(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 our CEO transition, (ii) payments associated with an internal investigation of export control compliance, and (iii) legal, accounting and advisory fee payments, to the extent associated with acquisitions, as well as contingent consideration payments under the terms of certain acquisition agreements.

(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.

On a trailing 12-month basis, adjusted free cash flow was the following:

	Three months ended												Trailing 12-month as of August 31, 2014
	November 30, 2013			February 28, 2014			May 31, 2014			August 31, 2014
GAAP cash flows from operating activities	$	10,593		$	19,534		$	5,407		$	15,475		$	51,009
Purchase of property and equipment		(1,328	)		(1,759	)		(1,589	)		(2,186	)		(6,862	)
Acquisition and other non-recurring charges		447			902			385			390			2,124
Adjusted free cash flow	$	9,712		$	18,677		$	4,203		$	13,679		$	46,271

Barracuda Networks, Inc.

Reconciliation of GAAP Revenue to Gross Billings

(in thousands)

(Unaudited)

	Three months ended August 31,						Six months ended August 31,
	2014			2013			2014			2013
GAAP Revenue	$	68,652		$	57,790		$	134,861		$	114,067
Total deferred revenue, end of period		342,663			286,792			342,663			286,792
Less: total deferred revenue, beginning of period		(328,488	)		(274,444	)		(313,157	)		(261,243	)
Deferred revenue adjustments		6,208			5,485			12,268			10,872
Total change in deferred revenue and adjustments		20,383			17,833			41,774			36,421
Gross billings (1)	$	89,035		$	75,623		$	176,635		$	150,488

(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 balance as of August 31, 2014 excludes the deferred revenue assumed on acquisition of C2C Systems Limited. We believe that gross billings provide insight into the sales of our solutions and performance of our business.

Barracuda Networks, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three months ended August 31,						Six months ended August 31,
	2014			2013			2014			2013
Operating activities
Consolidated net income (loss)	$	738		$	(2,378	)	$	889		$	(4,941	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,335			2,489			4,422			4,734
Stock-based compensation		3,736			2,631			6,818			5,128
Excess tax benefits from equity incentive plan		(2,566	)		(215	)		(4,338	)		(226	)
Loss on disposal of property and equipment		19			22			31			36
Deferred income taxes		(2,944	)		(5,514	)		(6,198	)		(5,467	)
Changes in operating assets and liabilities:
Accounts receivable, net		(3,433	)		184			(8,527	)		(1,016	)
Inventories, net		(267	)		(1,152	)		463			(1,515	)
Income taxes, net		2,049			4,232			3,073			(514	)
Deferred costs		(2,130	)		(3,502	)		(4,412	)		(6,588	)
Other current assets		(218	)		(389	)		(247	)		(902	)
Other non-current assets		101			418			100			211
Accounts payable		3,312			3,226			(1,267	)		(264	)
Accrued payroll and related benefits		(52	)		(764	)		(29	)		(1,883	)
Other accrued liabilities		528			251			476			(303	)
Other long-term liabilities		34			50			55			71
Deferred revenue		14,233			12,300			29,573			25,522
Net cash provided by operating activities		15,475			11,889			20,882			12,083
Investing activities
Purchase of property and equipment		(2,186	)		(2,866	)		(3,775	)		(4,529	)
Purchase of intangible assets		—			(28	)		—			(28	)
Purchase of investment in non-marketable equity and debt securities		—			(310	)		(600	)		(310	)
Business combinations, net of cash acquired		(4,791	)		(2,299	)		(4,791	)		(8,475	)
Net cash used in investing activities		(6,977	)		(5,503	)		(9,166	)		(13,342	)
Financing activities
Transaction costs related to initial public offering		—			(147	)		—			(147	)
Proceeds from issuance of common stock		4,906			434			7,246			441
Taxes paid related to net share settlement of equity awards		(1,215	)		(726	)		(2,340	)		(1,191	)
Repurchase of common stock		—			(585	)		—			(723	)
Dividends paid		—			—			—			(1,419	)
Extended (repayment of) employee loans		393			2,873			(70	)		3,119
Excess tax benefits from equity incentive plan		2,566			215			4,338			226
Repayment of note payable		(58	)		(55	)		(118	)		(111	)
Net cash provided by financing activities		6,592			2,009			9,056			195
Effect of exchange rate changes on cash and cash equivalents		(89	)		70			(92	)		(35	)
Net increase (decrease) in cash and cash equivalents		15,001			8,465			20,680			(1,099	)
Cash and cash equivalents at beginning of period		141,558			20,531			135,879			30,095
Cash and cash equivalents at end of period	$	156,559		$	28,996		$	156,559		$	28,996