Network Equipment Technologies, Inc. ( NWK) F2Q2012 Earnings Conference Call November 1, 2011 5:00 PM ET Executives Leigh Salvo – IR David Wagenseller – VP, Finance and CFO Nick Keating – President and CEO Analysts Nick Farewell – Arbor Group Peter Conrad – Kopp Investment Advisors Craig Stephens – Stafford Capital Management Presentation Operator
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» Network Equipment CEO Discusses F2Q2011 Results - Earnings Call Transcript
The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Additionally, though an audio archive of this call will be available on the company's website for at least 12 months, the statements made on this conference call are only made as of November 1, 2011 and we disclaim any duty or intention to update forward-looking statements.In addition to financial measures presented in accordance with GAAP, we will also be discussing certain non-GAAP financial measures that are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures should not be considered a substitute for or superior to GAAP results. Please refer to the press release issued today for reconciliations to GAAP and further detail regarding the non-GAAP measures. The press release is posted on our website. Our agenda today begins with David Wagenseller, who will provide a detailed review of our financial results. Nick Keating will then comment on the quarter’s business and operational highlights, and David will then offer some closing comments before we open the call for your questions. At this time, I will turn the call over to David. David Wagenseller Thank you, Leigh. In the press release issued today and available on our website, we reported a total revenue for the second quarter of fiscal 2012 was $16.4 million, up 45% from the prior quarter and down 19% from Q2 a year ago. Product revenue in the second quarter was $13 million, a 68% increase from the prior quarter and a 23% decrease from Q2 a year ago. Product revenue from our enterprise business was $7.8 million, up 62% from the prior year and up 77% from Q2 a year ago. The increase from last quarter results from higher sales of our voice-over IP products for UC and other IC based applications.
Product revenue from our government business was $5.1 million, up 78% from the prior quarter and down 58% from Q2 a year ago. Additional product shipments of $495,000 to government customers occurred in the last two weeks of the quarter that were not recorded as revenue as of contractual delivery terms prohibiting revenue recognition. The increased product revenue in Q2 was expected as Q2 is typically a strong quarter for NET as a result of the US government’s fiscal year end.The decline from prior year is partly attributable to program delays, and reduced spending by the US government customers as part of the ongoing spending constraint by the government. Service and other revenue was $3.5 million, down $137,000 compared to the prior quarter, and down $12,000 compared to Q2 from the prior year. Gross margin as a percentage of revenue was 37%, up 3 percentage points from the prior quarter and down 12 percentage points from Q2 of the prior year. Product gross margin was 36.2%, up 6 percentage points compared to the prior quarter and down 20 percentage points from Q2 of the prior year. The increase was primarily from higher product revenue absorbing fixed manufacturing costs. The decline in product margin from the prior year was the result of numerous factors including first, aggressive pricing in highly competitive sales situations, second, a large credit in Q2 of the prior year for cost of goods sold for a duty refund, third, less overall government revenue, which typically includes higher gross margin of legacy products, and fourth, lower overall product revenue that has to absorb fixed manufacturing costs. Read the rest of this transcript for free on seekingalpha.com