Infoblox Inc. (BLOX)

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Infoblox (BLOX)

F1Q13 Earnings Call

November 28, 2012 4:30 p.m. ET

Executives

Jane Underwood - IR

Robert Thomas - President and CEO

Remo Canessa - CFO

Analysts

Jonathan Ruykhaver - Stephens

Eric Suppiger - JMP Securities

Amitabh Passi - UBS

Kent Schofield - Goldman Sachs

Ehud Gelblum - Morgan Stanley

Sanjit Singh - Wedbush Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Infoblox first quarter results conference call. [Operator instructions.] I would now like to turn the conference over to your host, Jane Underwood. Please go ahead.

Jane Underwood

Thank you. Good afternoon, and thank you for joining us to discuss Infoblox’s financial results for the first quarter of fiscal 2013. With me on today’s call are Robert Thomas, our president and chief executive officer, and Remo Canessa, our chief financial officer.

By now, everyone should have access to our earnings announcement, which we released this afternoon. This announcement may also be found on our website at www.infoblox.com in the investor relations section.

Before I turn the call over to Robert, let me remind you that the presentation we’ll be making today includes forward looking statements. These statements and other comments are not guarantees of future performance, but rather are subject to risks and uncertainties. Our actual results may differ significantly from those projected or suggested in any forward looking statements.

For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our annual report on Form 10-K filed with the Securities and Exchange Commission on September 14, 2012.

For the sake of clarity, unless otherwise noted, all numbers we will talk about today will be on an adjusted non-GAAP basis. Please refer to the tables in our press release and the investor relations portion of our website for a reconciliation of GAAP to the non-GAAP numbers we will be discussing.

Now I’d like to turn the call over to Robert.

Robert Thomas

Thank you, Jane, and good afternoon. We had an outstanding start to our new fiscal year, with impressive revenue growth, strong product momentum, and improved operating leverage. I’m particularly pleased with our execution, as we reported double digit sequential revenue and product revenue growth against a cautious macroeconomic backdrop.

I believe our top line performance reflects our leadership in the DDI market, and our ability to succeed in an environment where customers are focused on increasing network accuracy and uptime while reducing expenses.

Revenue for the first quarter grew 26% year over year, and 10% sequentially, to a record $49.5 million. In the quarter, demand was strong across all geographic regions. Importantly, we had a great quarter outside of the United States, with sequential growth in both Europe and the Asia-Pacific region.

In the first quarter, existing customers continued to be a big part of our success. And complementing the strong demand from our customer base, new customer acquisition was also robust, and included many of the world’s leading companies.

From a bottom line perspective, non-GAAP operating margin was 6.9% for the quarter. We’re very encouraged by the prospects and strengths of our business. Our investment, execution, and focus on network automation, along with strong secular trends such as BYOD, virtualization, and cloud computing are creating a healthy selling environment for Infoblox.

Now I’d like to turn the call over to Remo to further discuss our financial results.

Remo Canessa

Thank you, Robert. I would like to remind everyone that the results I will be discussing are non-GAAP financial results, and exclude stock based compensation expenses, amortization of intangibles, and the tax impact of these adjustments. All share counts that I’ll be providing will be on a fully diluted average share basis.

As Robert mentioned, we are very pleased with our strong execution in the October quarter, which allowed us to exceed our financial targets. Revenue in the quarter grew to $49.5 million, which represents a 26% increase over the October quarter last year, and a 10% increase over the July quarter.

Product revenue in the October quarter was $27.1 million, or 55% of total revenue, which increased 19% from the October quarter last year, and was up 12% from the July quarter. Overall, the adoption of our next generation DDI appliances has been very strong. In the October quarter, approximately 83% of our DDI product revenue was from our new next generation of appliances.

Service and support revenue was $22.4 million, or 45% of total revenue, an increase of 34% over the October quarter last year and 7% over the July quarter. The increase in our service support revenue is primarily due to the amortization of support contracts and, to a lesser extent, an increase in professional services.

From a geographic perspective, in the October quarter Americas revenue grew 30% over the October quarter last year, and 10% over the July quarter, representing approximately 66% of our total revenue. EMEA revenue increased 33% over the October quarter last year, and 8% over the July quarter, representing approximately 24% of our revenue. The rest of the world revenue decreased 5% from the October quarter of last year, but was up 15% over the July quarter, representing approximately 10% of our revenue.

Product gross margin was 80% in the October quarter, compared with 81% in the October quarter last year, and 77% in the July quarter. The sequential increase was better than expected, as we experienced less discounting and increased mix of higher margin products.

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