Blue Coat Systems, Inc. (BCSI)

F2Q2011 Earnings Call Transcript

November 18, 2010 5:00 pm ET

Executives

Jane Underwood – VP, IR

Mike Borman – President and CEO

Gordon Brooks – SVP, CFO, Principal Financial and Accounting Officer

Analysts

Ryan Hutchinson – Lazard Capital Markets

Daniel Ives – FBR Capital Markets

Scott Zeller – Needham & Company

Jess Lubert – Wells Fargo Securities

Gary Spivak – Noble Financial Group

Troy Jensen – Piper Jaffray

Erik Suppiger – Signal Hill Group

Alex Henderson – Miller Tabak & Co.

Doug Ireland – JMP Securities

Woo Jin Ho – Bank of America

Presentation

Operator

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And ladies and gentlemen, thank you for standing by, and welcome to the Blue Coat Systems second quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) As a reminder, today’s call is being recorded. I would now like to turn the conference over to our host, Ms. Jane Underwood. Please go ahead.

Jane Underwood

Good afternoon and

thank you for joining us to discuss Blue Coat's financial results for the second quarter of fiscal year 2011. With me on today's call are Mike Borman, our President and Chief Executive Officer; and Gordon Brooks, our Chief Financial Officer.

Before I turn the call over to Mike, let me remind you that during the course of this call, we will make forward-looking statements about Blue Coat Systems, Inc. These include statements regarding expectations concerning market growth and business opportunities, including levels of IT spending, expectations regarding future revenues, expenses, margins, profits, tax rates and other financial metrics, plans to develop and offer new products and services and enter new markets, success of our business strategy, acquisitions, restructuring and changes in our business model and operations, and any statements reflecting the potential confirmation of the settlement of the derivative lawsuits and other matters impacting Blue Coat's financial outlook and future business.

All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including any statements of expectation or belief and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the risks that are described from time to time in the reports filed by Blue Coat with the Securities and Exchange Commission, including but not limited to, the risks described in Blue Coat's Annual Report on Form 10-K for the year ended April 30

th

, 2010.

No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations or financial position of Blue Coat. Blue Coat assumes no obligation and does not intend to update these forward-looking statements except as required by applicable laws.

Now, I'd like to turn the call over to Mike.

Mike Borman

Thank you, Jane. Good afternoon everyone. Welcome to our second quarter results call. It’s been a very exciting first 11 weeks for me here at Blue Coat. Overall, our second quarter performance was generally what I expected. From a bottom line and cash flow perspective, the results were good. However, I am not happy with our revenue performance, and I believe there is more work to be done to get back to double-digit growth rate.

My plan from day one has been to build a comprehensive view of the company and identify its key strengths and challenges. I have met or spoken with hundreds of employees, customers, partners in all three geographic regions. Back last week, I was in Japan and China, where I met with customers and business partners who spoke enthusiastically about our products. The feedback I have received has been insightful and useful for laying out our plans going forward.

I have learned that Blue Coat has many great assets, which includes being well positioned in some of the faster-growing segments of the technology market. Our company also has strong intellectual property, with almost 200 issued or pending patents. I am very excited about our current web security products and the new solutions that we will be introducing in the next couple of quarters.

In addition, we offer acceleration and optimization product capabilities that are competitive for where the market is focused today, which is primarily legacy email and storage acceleration, but more importantly, our products are past our largest competitors where the market is headed, which is in the proliferation of rich media such as video and cloud-based services in Internet delivered applications.

Blue Coat has also done a good job of taking its intellectual property and product functionality and developing new solutions for tangential markets such as CacheFlow for the carrier market. I found that Blue Coat has a loyal customer base that depends on our products to make the Internet faster and more secure. Importantly, customers around the world have begun embracing our visibility, prioritization, optimization, and acceleration solutions. Very large banks in the United States and China, the big retail company in Mexico, a mid-sized marketing company in Europe, several agencies of the U.S. federal government, all have experienced strong performance improvements by using those solutions.

Our challenge is lying in a few key areas, which have primarily caused a slowdown in our revenue growth. First, our global go-to-market approach needs more focus, better process and stronger end-to-end execution. In particular, we need to gain greater sales and marketing momentum in the WAN optimization market.

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