Acme Packet Management Discusses Q2 2012 Results - Earnings Call Transcript

Acme Packet (APKT)

Q2 2012 Earnings Call

July 26, 2012 4:30 pm ET

Executives

Brian Norris - President Elect

Andrew D. Ory - Co-Founder, Chief Executive Officer, President and Director

Peter J. Minihane - Chief Financial Officer, Principal Accounting Officer and Treasurer

James J. Hourihan - Senior Vice President of Corporate Strategy

Analysts

Paul Silverstein - Crédit Suisse AG, Research Division

Vijay Bhagavath - Deutsche Bank AG, Research Division

Ehud Gelblum - Morgan Stanley, Research Division

James Kisner - Jefferies & Company, Inc., Research Division

Mark Sue - RBC Capital Markets, LLC, Research Division

Joanna Makris - Mizuho Securities USA Inc., Research Division

Catharine Anne Trebnick - Northland Capital Markets, Research Division

AjayKumar P. Kasargod - Cornerstone Capital Management, Inc.

Rod B. Hall - JP Morgan Chase & Co, Research Division

Simon M. Leopold - Raymond James & Associates, Inc., Research Division

Simona Jankowski - Goldman Sachs Group Inc., Research Division

Brent A. Bracelin - Pacific Crest Securities, Inc., Research Division

Presentation

Operator

: Good afternoon, and welcome to Acme Packet's Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded. I would now like to turn the conference over to our host for today, Mr. Brian Norris, Director of Investor Relations for Acme Packet. Please go ahead.

Brian Norris

:

Thank you, Stacy. Good afternoon, everyone, and welcome to the conference call. I'm joined by Andy Ory, our President and CEO; Peter Minihane, our Chief Financial Officer and Treasurer; and James Hourihan, our Senior Vice President of Corporate Strategy.

The press release announcing our second quarter results, as well as the reconciliation of management business outlook for 2012, using non-GAAP financial measures as compared to the most applicable GAAP measures, are available on the Investor Relations section of our website at www.ir.acmepacket.com.

All results and expectations we review are on a non-GAAP basis unless otherwise described as GAAP. Our Non-GAAP financial measures exclude stock-based compensation and related payroll tax expenses, amortization of the tangible assets and merger-related expenses associated with the company's acquisition activities. Also please note that our earnings per share amounts are on a fully-diluted basis.

Please note that statements made during this call that are not historical facts may be forward-looking statements within the meaning of Securities Act of 1933 and the Securities and Exchange Act of 1934. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from those anticipated. A discussion of these risks and uncertainties can be found in our recent filings with the SEC. Investors should not place undue reliance on these statements, which are current only as of the date they are made, and we disclaim any obligation to update them.

With that, I'd like to turn the call over to Andy.

Andrew D. Ory

:

Thank you, Brian, and good afternoon, everyone.

I'll briefly review the results for the quarter and then share some thoughts on what's happening with our business and what we see as the most significant drivers for our growth.

Revenue in the second quarter were $67.6 million. Gross margin was 83%, unchanged from last quarter. Operating margin was 21%, and non-GAAP EPS was $0.13 per share. Cash from operations was $23.6 million, and we ended the quarter with $401 million in cash, unchanged sequentially, despite utilizing approximately $21 million in cash to acquire IPTEGO during the quarter.

We added 93 new customers in the second quarter, including 37 service providers and 56 enterprise. Our solutions are now deployed at 89 of the Top 100 service providers and 45 of the Fortune 100 companies. Upon detailed review of our core SBC markets with our global sales organization, our win rate in the first half of 2012 appears to be in line with the last 12 quarters.

I want to share a more detailed look at what is happening in our markets and the trends that are impacting our business. The North American service provider business continues to be impacted by an overall pause in spending. Our original plan for 2012 assumes no growth from our top 2 North American Tier 1 service provider customers. We now estimate that our bookings for our top 2 North American Tier 1 service provider businesses will be down approximately 25% in 2012.

Looking at the North American service provider market as a whole, while many of our customers are engaged in projects related to Voice over LTE, or VoLTE, we believe that it will be 2013 before it has any meaningful impact on our business.

Second, we believe that various M&A activities in North America in 2011 are continuing to have an impact on our market. In contrast, our North American enterprise business performed well in the first half of the year, building off of strong growth in 2011. It grew 28% in the first half of 2012 compared to the first half of 2011, primarily reflecting increased demand for SIP trunking.

Moving beyond North America, I want to share a few observations in the rest of the world. In EMEA, we are seeing cautious spending fueled by the region's uncertain economic environment. Additionally, some of our service provider customers in EMEA are telling us that traditional IMS as it relates to VoLTE is just too expensive to expand current networks or deploy new ones in developing markets.

In the short term, this negatively impacts demand for our access and interconnect SBC solutions. However, on the positive side, this has provided us opportunity to market and sell a broad or more strategic solution for this VoLTE network, namely our SMX and associated session delivery network element. Our SMX solution dramatically eases implementations and lower cost.

Finally, SIP trunking in the region has been slow to start. We believe the growth trajectory of the EMEA SIP trunking market will be different from that of North America due to the sheer number of Tier 1s operating in the region.

Our APAC and CALA regions both performed well in the first half of 2012. In APAC, we continue to pursue major Tier 1 service providers and are starting to see plans for SIP trunking in several markets, including China, Japan and Southeast Asia. In CALA, we are effectively leveraging our already strong position with the region's Tier 1.

Looking forward, we believe there are 3 major opportunities, which will drive Acme Packet's future growth globally. The first is SIP trunking. SIP trunking is expected to continue to be a major and steady contributor to our future success. A SIP trunk provides the IP link from an enterprise, using its own IP PBX or unified communications infrastructure to its service provider with PSCN or IP connectivity to the rest of the world. Today, SIP trunking is driving nearly all of our enterprise business.

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