Acme Packet's CEO Discusses Q4 2011 Results - Earnings Call Transcript
Acme Packet, Inc. (
)
Q4 2011 Earnings Conference Call
February 2, 2012 16:30 ET
Executives
Brian Norris – Director, Investor Relations
Andy Ory – President and Chief Executive Officer
Peter Minihane – Chief Financial Officer
Seamus Hourihan – Senior Vice President, Corporate Strategy
Analysts
Paul Silverstein – Credit Suisse
Brian Modoff – Deutsche Bank
Alex Henderson – Miller Tabak
Ehud Gelblum – Morgan Stanley
Rod Hall – JPMorgan
Catharine Trebnick – Northland Investments
Simona Jankowski – Goldman Sachs
James Kisner – Jefferies & Company
Dmitry Netis – William Blair
Simon Leopold – Morgan Keegan
Jess Lubert – Wells Fargo
Rich Valera – Needham & Company
Brent Bracelin – Pacific Crest
Jeff Kvaal – Barclays
Sanjiv Wadhwani – Stifel Nicolaus
Presentation
Operator
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Ladies and gentlemen, thank you very much for standing by. Good afternoon, 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 that time, we ask participants to limit themselves to one question and one follow-up question. (Operator Instructions) As a reminder, pardon me ladies and gentlemen, this conference call is being recorded.
I’d now like to introduce your host for today’s call, Mr. Brian Norris, Director of Investor Relations for Acme Packet. Please go ahead, sir.
Brian Norris – Director, Investor Relations
Thank you, Dave. Good afternoon, everyone and welcome to our 22nd quarterly earnings results conference call. I am joined today by Andy Ory, our President and CEO; Peter Minihane, our Chief Financial Officer; and Seamus Hourihan, our Senior Vice President of Corporate Strategy. The press release announcing our fourth quarter results as well as a reconciliation of management’s outlook for 2012 using non-GAAP financial measures are available on the Investor Relations section of our website at www.acmepacket.com.
All results and expectations we review are on a non-GAAP basis unless otherwise described as GAAP. Non-GAAP net income and non-GAAP net income per share are non-GAAP financial measures, which excludes stock-based compensation and related payable taxes as well as amortization of intangible assets and merger and integration related expenses associated with the company’s acquisition activities. Again, this reconciliation can be found at www.ir.acmepacket.com.
Please note that statements made during this call that are not historical facts may be forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These 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 can be found in our recent filings with the SEC. 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.
With that, I’d like to turn the call over to Peter.
Peter Minihane – Chief Financial Officer
Thank you, Brian. As a reminder, all financial information reviewed this afternoon historic and forecasted related to our statements of income are in a non-GAAP basis unless otherwise described as GAAP. Our discussion of sequential changes in our financial results compares the fourth quarter of 2011 to the third quarter of 2011. Finally, all earnings per share amounts are on a fully diluted basis.
Total revenue in the fourth quarter was $83 million, which compares to $64.3 million in product revenue, I’m sorry – which include $64.3 million in product revenue and $18.7 million in maintenance, support, and service revenue. Total revenue in 2011 was $307.3 million, an increase of 33% over 2010. Geographically, 60% of our fourth quarter revenue came from the United States and Canada while 40% came from the rest of the world. The distribution of our fourth quarter revenue was 35% direct and 65% indirect. One customer accounted for at least 10% of our fourth quarter revenue and that was Nokia Siemens Networks at 21%.
Gross margin was 83% in the fourth quarter and 84% for the full year. Total operating expenses were $40.6 million in the fourth quarter, an increase of 12% sequentially. This reflected a slight increase in headcount in the fourth quarter as well as the full quarterly impact of employees hired in the third quarter. Operating margin was 34% in the fourth quarter consistent with the third quarter.
Net income in the fourth quarter was $18.3 million or $0.26 per share. We ended the fourth quarter with 752 employees compared to 741 at the end of the third quarter and 570 at the end of 2010. We ended the year with $372 million in cash and investments, an increase of approximately $34 million sequentially and $96 million for the year.
Cash provided by operations was $18.7 million in the fourth quarter, while total capital expenditures were $4.2 million. Accounts receivable net was $59.7 million at the end of the fourth quarter, while DSOs were 65 days at December 31, 2011 unchanged from September 30, 2011. Inventory at the end of the fourth quarter decreased to $10.2 million compared to $11.8 million at the end of the third quarter.
Finally, deferred revenue was $24.3 million at the end of the fourth quarter compared to $30.7 million at the end of the third quarter. This reflects a $1.4 million decrease in deferred product revenue and a $5 million decrease in deferred service revenue reflecting the amortization of customer service contracts. As we have discussed on previous calls, deferred revenues can fluctuate from period to period based on the timing of shipments and revenue recognition. And we do not believe it should be lied upon as an indicator of the health of the business.
With that I will turn the call over to Andy.
Andy Ory – President and Chief Executive Officer
Thank you Peter and good afternoon everyone. I will focus my comment on the actions and investments we are taking to improve our positioning for 2012 and beyond. While 33% revenue growth, strong customer acquisition activity and significant product innovation are all positives for the company, we did not deliver on the even higher expectations that we had set for ourselves in 2011. This was in large part due to underperformance in the North American service provider market reflecting a slowdown in the capital expenditures in the second half of the year and delays caused by consolidation activity among various service providers.
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