Network Equipment Technologies' CEO Discusses F4Q 2012 Results - Earnings Call Transcript

Network Equipment Technologies (NWK)

F4Q 2012 Earnings Call

May 9, 2012 5:00 p.m. ET

Executives

David Wagenseller – Acting President & Chief Executive Officer

Karen C. Carte - Acting Chief Financial Officer

Leigh Salvo - Investor Relations

Analysts

John Nelson – King and Associates

Peter Conrad - Kopp Investment Advisors

Nick Farewell - Arbor Group

Presentation

Operator

Good day, ladies and gentlemen and welcome to the quarter four 2012 Network Equipment Technologies' earnings call. My name is Ian and I will operator for today. All participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions) As a reminder the call is being recorded for reply purposes. And now I'd like to turn the call over to Leigh Salvo of Investor Relations. Please proceed.

Leigh Salvo

Welcome everyone to our call this afternoon during which we will discuss results for Network Equipment Technologies' Fourth Quarter of Fiscal Year 2012. With me today are David Wagenseller, our CEO and Karen Carte, our CFO. In keeping with the Safe Harbor provisions of the Private Securities Litigation Reform Act, I want to remind everyone that we'll be making forward looking statements and projects today, including those relating to future revenue, operating results and financial conditions.

Investors are cautioned that these statements are based on current estimates and assumptions that involve risks and uncertainties that might cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These risks and uncertainties may include our ability to develop and commercialize new products and product enhancements, success in buy our sales channels, challenges of managing inventory and production of products, federal government budget matters and procurement decisions, circumstances regarding specific sales that can affect the recognition of revenue, our ability to retain employees and maintain business functions following recent restructuring and other risks, including those identified in the company's filings with the SEC, including Forms 10-K and 10-Q and in other press releases and communications.

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 May 9th, 2012 and we disclaim any duty or intention to update forward-looking statements.

In addition to financial measures presented in accordance with GAAP, we'll 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 reconciliation's to GAAP and further detail regarding non-GAAP measures. The press release is posted on our website.

Our agenda today begins with David Wagenseller, who will comment on our business and operations. Karen Carte will then comment on the quarter and year's financial results, and then we'll open the call for your questions.

At this time, I'll turn the call over to David.

David Wagenseller

Thank you Leigh. Welcome to those of you on the call. I'd like to start by discussing the Company's current financial position and where I see our strongest prospects for growth. Fiscal 2012 was a turning point for the company. For the first time in recent history product revenue from our Enterprise business outweighed our Federal business. In fact, in Q4 approximately two-thirds of our product revenue came from Enterprise customers and a significant portion of our product revenue growth is coming from sales of our next generation Unified Communication platform.

During the past year, we consistently grew our customer base, continued on a path of product innovation, and established significant partner relationship around the world. The acceptance of our new UX series platform is high. These are all positive signal that we are on the right track. However, our overall financial performance in the past fiscal year did not fully reflect the success in our Enterprise business due largely to the accelerated decline of our federal Government business.

We took decisive action to provided financial stability in the near term and to maintain the assets and capabilities need for growth in fiscal year 2013 and beyond. These recent actions represent major restructuring and resizing of our operations. Thee changes along with some additional cost reduction efforts give us a line of sight to reach cash flow break even in the September time from which is our second fiscal quarter.

A clear indicator that we're moving in the right direction with our cash balance at the end of the fourth quarter which declined a comparatively small $1.8 million in the prior quarter. A big improvement over the prior three quarters where we dropped on average $8.2 million each quarter. Of course we are equally focused on growing thee top line over the past year we consistently added 50 to 60 new customers per quarter with 75 in the fourth quarter totaling approximately 250 new customers for the full fiscal year. Many of our new [inaudible] start with initial site deployment which don't translate into significant revenue during the deployment, planning stage but lay the foundation for future roll outs and reoccurring revenue stream. We are there for carefully optimistic in our revenue ramp gets deeper as the project roll out broadens.

Here are some additional details that I want to share as I am encouraged by the traction we are seeing from enterprise customers seeking UC solutions. New customer highlights in the quarter included, and this is just a sample, a number of North American Airlines which serves plenty domestics and international destinations in the Pacific region. One of the top five international postal carriers worldwide. The UK division of one of the largest audit financial consultant firms in the world. One of the world's largest providers of security products based in Europe. A French multi-faceted utility company. A British multinational asset management company, and a major video game software developer headquartered in Japan. We are seeing success in existing relationships. For an example with a tier one system integration carrier partner, we increased the rate of deployment for a global roll out for a multinational company ad added support services to the contract. We are also seeing repeat business from recent UC customers which is encouraging.

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