Meru Networks' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Meru Networks, Inc. (MERU)

Q2 2012 Earnings Call

July 26, 2012 05:00 pm ET

Executives

Dr. Bami Bastani – President & Chief Executive Officer

Brett White – Chief Financial Officer

Sarosh Vesuna – General Manager, Education

Steve Pasko – Market Street Partners

Analysts

Jayson Noland – Robert W Baird

[Jason Willie – Talon and Company]

Blaine Carroll – Avian Securities

Rajesh Ghai – ThinkEquity

Erik Suppiger – JMP Securities

Name - Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Meru Networks’ 2012 Earnings Call. (Operator instructions.) As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Steve Pasko from Market Street Partners. Sir, you may begin.

Steve Pasko

Thank you. Thanks for standing by and welcome to the Meru Networks Q2 2012 conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. On the call today are Dr. Bami Bastani, President and CEO; Brett White, CFO; and Sarosh Vesuna, General Manager of Education.

During the course of this call Meru Networks’ management will make forward-looking statements regarding future events and the future financial performance of the company. Generally these statements are identified by the use of words such as “expect,” “believe,” “anticipate,” “intend” and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These risk factors are described in our press release and are more fully detailed under the caption “Risk Factors” in Meru’s most recent quarterly report on Form 10(q) as filed with the SEC on May 4, 2012, and the company’s other filings with the SEC.

During this call we will present both GAAP and non-GAAP financial measures. Non-GAAP measures exclude amortization of acquisition-related intangibles and stock-based compensation expenses. These non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing Meru’s performance. For additional information regarding our non-GAAP financial information and the most directly comparable GAAP measures please refer to today’s press release regarding our preliminary Q2 2012 results.

The press release has been furnished to the SEC as part of a Form 8(k). In addition, please note that any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. Now I will turn the call over to Dr. Bami Bastani, President and CEO of Meru Networks.

Dr. Bami Bastani

Thank you, Steve, and welcome everyone and thank you for joining Meru’s Q2 2012 earnings call. Today in addition to discussing our 2012 Q2 results I will give you an update on my first 100 days here at Meru and our progress towards the Q2 priorities I set on our last earnings call.

As a reminder, these priorities included one, holding OPEX at or below Q1 levels with heightened focus on efficiencies and performance management including sales and marketing where we have increased investment by roughly 60% over the prior twelve months; two, redirecting marketing from brand and broad media to targeted demand generation; and three, improving our product development engine to better manage product transitions and put in place processes consistent with our best-of-breed strategy. I believe these areas of focus all serve as key catalysts for Meru to get back on a profitable growth path.

Now on to our Q2 results: I’m pleased to announce that the company had record revenue in Q2. I would like to thank our customers, our partners and our employees who made this possible. The company’s Q2 total revenue was $24.5 million US representing a quarterly sequential growth of 26% and exceeding our guided range of $20 million to $22 million. Our non-GAAP gross margins were at 65.1%, above our guided range of 63% to 64% and a 60-basis point improvement from Q2 2011.

Q2 2012 was a strong quarter for us across the board including our reduction in OPEX and cash use. As we stated on our April call, we set a goal of holding OPEX at or below Q1’s level of $24.1 million. I’m happy to report that in Q2 we achieved $20.1 million in OPEX representing a reduction of 6% from Q1. We continue to remain extremely focused in executing in our key markets and improving the efficiency of our markets as we optimize our cost structure and drive towards our goals of growth and profitability over the next several quarters and expect that the cash burn in the second half will be significantly reduced from the first half of the year. Brett will discuss the numbers in greater detail after my comments.

On our last call we had talked about key transitions that impacted our Q1 2012 results. These transitions included the company bringing onboard the new CEO, the rapid expansion of the sales force and the introduction of major new products and software releases. I’m happy to report that the CEO transition is complete. These included considerable travel and numerous deep dive meetings with our customers and employees. I believe my meetings helped give me a balanced view of Meru and our opportunities as well as our challenges. In Q2 we made significant operational changes and implemented new processes specifically designed to address the needs of our customer base.

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