SonicWALL, Inc. Q1 2010 Earnings Call Transcript

SonicWALL, Inc. Q1 2010 Earnings Call Transcript
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SonicWALL, Inc. (SNWL)

Q1 2010 Earnings Call Transcript

April 23, 2010 8:30 am ET

Executives

Kelly Blough – VP, IR

Matt Medeiros – President and CEO

Robert Selvi – CFO

Analysts

Jonathan Ruykhaver –ThinkEquity

Rob Rezza – RBC Capital Markets

Jason Nolan – Robert Baird

Sterling Auty – JPMorgan

Eric Martinuzzi – Craig-Hallum

Catharine Trebnick – Avian Securities

Presentation

Operator

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Previous Statements by SNWL
» SonicWALL Inc. Q3 2009 Earnings Call Transcript
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» SonicWALL Inc. Q1 2009 Earnings Call Transcript

Good morning and welcome to the SonicWALL first quarter 2010 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Kelly Blough, please go ahead.

Kelly Blough

Thank you, Mark. Good morning. Welcome to our first quarter 2010 earnings conference call. With us today are Matt Medeiros, President and CEO of SonicWALL and Robert Selvi, CFO. Before we begin I'd like to remind everyone that during this conference call we will be making forward-looking statements within the meeting of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Forward-looking statements include without limitation revenue GAAP and non-GAAP earnings per share and growth margin guidance for the second quarter of 2010, expected operating expenses for the second quarter of 2010, our ability to maintain mid to high teen operating margin, recovering demand condition, future availability of new and benefits of new product offerings and our positioning to deliver growth of both market rate.

All forward-looking statements made on this call are subject to risks, uncertainties and assumptions that could cause actual results or events to differ materially from those contained in the forward-looking statement.

For a detailed description of the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statement, as well as the risks related to our business in general we refer you to the periodic report that the company has filed from time-to-time with the SEC. Including discussions in the risk factor section of the company's annual report on Form 10-K for the year ended December 31, 2010.

The Company undertakes no obligation to update forward-looking statements at any time or for any reason. In addition to supplement our consolidated financial statements presented in accordance with generally accepted accounting principles or GAAP, SonicWALL presents certain non-GAAP financial measures. Management regularly uses these non-GAAP financial measures to evaluate aspects of the company's operating performance with respect to business objectives and planning targets.

These non-GAAP financial measures also facilitate comparisons of our operating performance to other companies in our industry which may also disclose similar non-GAAP financial measures to supplement their GAAP results. We also believe that investors benefit from this additional disclosure as it provides transparency into financial information used by management in our assessment of operating performance.

A reconciliation of each non-GAAP financial measure referenced in this presentation to the most directly comparable GAAP financial measure is in the news release issued earlier today in tables immediately following the condensed consolidated statements of cash flows. These non-GAAP measures should not be viewed as a substitute for the company's GAAP results.

I will now turn the call over to Matt Medeiros.

Matt

Medeiros

Thank you, Kelly. Good morning everyone, and thank you for joining our call. SonicWALL had a strong start to 2010. The first quarter was characterized by solid fundamentals delivering 17% year-over-year revenue growth, strong operating margin, non-GAAP EPS growth of 70% year-over-year, excellent operating cash flow and continued growth in deferred revenue. In spite of the typical Q1 seasonality, SonicWALL continued to build momentum.

We are systematically implementing our strategic plan, and based on our strategic plan we believe that we are well positioned to deliver growth above market. Our past R&D marketing and sales investments are fueling our current and future growth. In Q4, we reported that we saw stabilization in the SMB market, and in the first quarter we are pleased to see a continuation of improving conditions.

Channel partners reported relatively linear demand throughout the quarter, which is not typical for the first quarter and maybe a sign, a further recovery in the SME, SMB demand. Our new refresh TZ family is selling well and above typical first quarter expectations. SonicWALL continues to attract new channel partners who for various reasons including our superior channel programs, new products and better profitability are recognizing SonicWALL as the right choice for today's complex networks.

Wire-speed malware scanning of all data, voice and video traffic is the primary competitive advantage we bring partners and then customers along with the best total cost of ownerships. Informatics recently released its fourth quarter and full year 2009 market share data and as we expected SonicWALL continued to show market share gains. In 2009, SonicWALL was the clear leader in the $500 to $1,500 category leading in both revenue and units.

We also posted gains in other firewall categories, most notably in the 5,000 to 10,000 category where our market share doubled between the first and fourth quarters of 2009. These market share gain support our view that SonicWALL is building momentum in mid-enterprise and government accounts.

Our SSL VPN market share was 20% for 2009. When you consider that this 20% unit market share does not include SSL VPN, sold as part of the UTM Firewall offering, well, we're a major player in the SSL VPN market. As I said, we continue to build momentum in mid-enterprise, large distributed enterprise and governments with some notable new customer wins. For example, a large U.S. healthcare organization increased its deployment of NSA 240s by over 200 units for securing the robotic surgical devices.

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