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Acme Packet CEO Discusses Q3 2010 Results - Earnings Call Transcript

Acme Packet CEO Discusses Q3 2010 Results - Earnings Call Transcript

Acme Packet, Inc. (



Q3 2010 Earnings Call

October 28, 2010 5:00 PM ET


Brian Norris – Director, Investor Relations

Andy Ory – President and CEO

Peter Minihane – Chief Financial Officer and Treasurer


Paul Silverstein – Credit Suisse

Catharine Trebnick – Avian Securities

Vijay Bhagavath – Deutsche Bank

Alex Henderson – Miller Tabak

Simona Jankowski – Goldman Sachs

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Rich Valera – Needham & Company

Simon Leopold – Morgan Keegan

John Marchetti – Cowen & Company

Brent Bracelin – Pacific Crest Securities

Sanjiv Wadhwani – Stifel Nicolaus

Larry Harris – C. L. King

Jonathan Kees – Capstone Investments



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Good afternoon, ladies and gentlemen, and welcome to Acme Packet’s Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. During the Q&A portion of today’s call, we ask participants to limit themselves to one question and one follow-up question. (Operator Instructions)

As a reminder, ladies and gentlemen, this conference call is being recorded. I would now like to introduce your host for today’s call, Brian Norris, Director of Investor Relations for Acme Packet. Please go ahead sir.

Brian Norris

Thank you, Tony. Good afternoon, everyone and welcome to our 17th quarterly conference call. I am Brian Norris, Director of Investor Relations and I’m joined here today by Andy Ory, our President and Chief Executive Officer and Peter Minihane, our Chief Financial Officer and Treasurer.

The format for the call is as follows. Andy will begin with a high level overview of our third quarter results. Peter will then follow with a detailed financial review and a discussion of our updated outlook for 2010. And then Andy will provide an update on the key growth drivers that we see for 2011. He’ll then open the call up for Q&A.

All results and expectations, we review this afternoon, are on a non-GAAP basis unless otherwise described as GAAP. During our call, we’ll be referring to non-GAAP net income and non-GAAP net income per share, which are non-GAAP financial measures, which for all periods presented excludes stock-based compensation and amortization of intangible assets related to the company’s acquisition of Covergence last year.

The press release announcing our third quarter results along with our financial statements and a reconciliation of non-GAAP financial measures for the most directly comparable GAAP measures is available on the Investor Relations section of our website at


Please note that the statements made during this call that are not historical facts may be forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934. Such forward-looking statements may relate among other things to our expected financial and operating results, our future business prospects including the opportunities for our solutions and market size, our leadership position in forecasted market conditions. Such forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from those anticipated.

A discussion of these risks and uncertainties is contained in our recent filings with the SEC, including those factors discussed under the caption, Risk Factors in such filings. Investors should not place undue reliance on these statements, which are current only as of the day they are made and we disclaim any obligation to update them.

Before I turn the call over to Andy, let me briefly bring your attention to upcoming Investor events. On November 2, we’ll be in New York for the Needham Broadband Technology Day and then on November 30, we’ll be in Scottsdale Arizona for the Credit Suisse Technology Conference.

One last calendaring item, please make plans to join us at 5 p.m. Eastern Time on Tuesday February 1 for our fourth quarter earnings results conference call. For more details on our IR Outreach plan for the fourth quarter 2011, please feel free to contact me at 781-328-4790. With that, I’d like to turn the call over to Andy.

Andy Ory

Thank you, Brian and good afternoon everyone. We are pleased to be reporting the strongest quarter in the company’s history. Accelerating demand for our solutions over the last eight quarters has led to growing momentum in all areas of the business.

Our financial results during the third quarter were again highlighted by record revenue, earnings, operating margins and ending cash. Total revenue increased to a record $56.6 million in the third quarter, reflecting growth of 56% year-over-year. Gross margin remains very robust at 83%. Strong revenue growth and gross margin enabled us to expand operating margin to a record 38%.

We reported non-GAAP EPS at $0.20, an increase of 122% year-over-year. We further improved our already strong balance sheet, ending the quarter with a record $237 million in cash, up $20 million sequentially. Our visibility which qualitatively refers to bookings, backlog, customer activity and strategic partner engagements has never been better.

Beyond the financial highlights, we added 71 new customers in the third quarter. This included 30 new service provider customers and 41 new enterprise customers. We added nearly 200 new customers in the first nine months of 2010 and now serve the needs of nearly 1,200 customers in over 100 countries. This new customer adoption and the expansion opportunities that each represents is critically important to our long-term growth plan.

We announced several new customers during the third quarter, including China Mobile, the world’s largest mobile network. We also announced cable and wireless, which is one of the world’s leading providers of critical communication network and services.

We launched the Powered by Acme Packet program, which enabled IT communication solution providers to embed Acme packets to Net-Net OS-E, session border controller software, which allows us to expand our reach into the small and medium size enterprise market. Through this program, our branded technology is now available in both Avaya and HP offerings.

Our Net-Net 3820 and Net-Net 4500 platforms were certified by the U.S. Defense Information System Agency, Joint Interoperability Test Command for information assurance and interoperability with the U.S. Department of Defense Network. Having achieved these certification, our product are now listed on the DODs unified capabilities of proved product list. We continue to be excited by the overall tractions we see in the federal government market.

We see evidence of growing momentum in all areas of the company. We expect this momentum to continue in Q4 and 2011. Based on the strength of the business during the first nine months of the year and the growth drivers, we’re seeing in our key markets globally. We are raising our outlook for 2010. We are updating our earlier outlook which called for 53% revenue growth and 109% earnings growth in 2010.

We now expect revenue of between $220 million and $221 million, an increase of approximately 56% over 2009. We now expect non-GAAP EPS of between $0.76 and $0.77 per share, an increase of approximately 119% over 2009.

We believe we can deliver on this upwardly revised business plan while also properly positioning the company for 2011 and beyond. Our initial expectations for 2011 are for revenue growth and earnings growth of approximately 30%. We will continue to invest in the development of a great standalone company. We’re in the process of completing our operating plan for next year and will be in a position during our next call in February to provide a more detailed look at our plan for 2011.

For a closer look at the numbers and our outlook, let me turn the call over to Peter.

Peter Minihane

Thank you, Andy. This afternoon, I will review our financial results for the third quarter 2010 and then discuss our updated outlook for the fourth quarter. As a reminder, all financial information reviewed this afternoon, both historic and forecasted, related to our statements of income are on a non-GAAP basis unless otherwise described as GAAP.

Our discussion of sequential changes in our financial results compares this quarter to the second quarter of 2010. Finally, please note that all earnings per share amounts are on a fully diluted basis.

With that, I’ll begin with a brief review of our third quarter results. Total revenue was $56.6 million, an increase of 6% sequentially. Product revenue was $45.3 million, an increase of 8% sequentially, primarily reflecting an increase in average sell price and an increase in the total number of units recognized those revenues.

Maintenance, support and service revenue was $11.3 million, unchanged sequentially. The distribution of revenue was 48% direct and 52% indirect, consistent with prior quarters. One direct customer accounted for 10% of revenue negligible rise in business at 13%. One channel partner accounted for 10% of revenue and that was Alcatel-Lucent at 15%. I’ll remind you that Alcatel-Lucent like many of our channel partners represents dozens of end-user customers.

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