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Meru Networks, Inc. (MERU)

Q4 2012 Results Earnings Call

January 29, 2013 5:00 PM ET

Executives

Steve Pasko - Market Street Partners, IR

Dr. Bami Bastani - President and CEO

Larry Vaughan - Senior Vice President, Worldwide Sales, Services and Support

Brett White - Chief Financial Officer

Analysts

Kimberly Evers - Robert W. Baird

Jason Willey - Cowen

Trevor Bacon - Lazard Capital Markets

Rajesh Ghai - Craig-Hallum

Presentation

Operator

Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the Meru Networks’ Q4 2012 Earnings Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions)

As a reminder, this conference maybe recorded. I would now like to turn the call over to your host for opening remarks and Safe Harbor, Mr. Steve Pasko. Sir, you may begin.

Steve Pasko

Thank you. Thank you for standing by. And welcome to the Meru Networks fourth quarter and fiscal 2012 conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be open for questions.

On the call today are Dr. Bami Bastani, President and CEO; Larry Vaughan, Senior Vice President of Worldwide Sales, Services and Support; and Brett White, CFO.

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, intent 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 November 8, 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 stock-based compensation expense, litigation reserve expense, amortization of intangible assets related to the company’s acquisition of Identity Networks in the third of 2011, amortization of the fair value of a common stock warrant issued in connection with debt financing and other items outside the ordinary course of business.

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 fourth quarter and fiscal year end 2012 results. The press release has also been furnished to the SEC as part of a Form 8-K.

In addition, please note that any forward-looking statements that we may 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. Good afternoon, everyone, and thank you for attending our fiscal fourth quarter 2012 conference call. I’m very pleased to say that Q4 was Meru’s third consecutive quarter of record revenues. Q4 revenues up $28.2 million are the highest the company has reported so far, up 21% year-over-year and 11%, sequentially. This success we believe is the result of a significant business transformation process initiated in April 2012.

Looking at second half of 2012 compared to the first half of the year, we grew revenue by 22% while reducing OpEx. We reduced cash burn by 61%. We introduced new products that have been well received.

Meru’s architectural differentiation virtualizing the wireless LAN network and channel layering to meet the ever-changing mobility, density and capacity requirements is becoming even more relevant now than ever.

As we look at 2013, we are well-positioned for continued growth and anticipate revenues in the range of $110 million to $120 million or 18% growth at the midpoint, while maintaining tight fiscal control and targeting quarterly EBITDA break-even in second half 2013.

Specific initiatives that are driving our growth include vertical market execution, BYOD onboarding and provisioning solutions approach, and new products, as well as cloud strategy.

Trends in the market, including the growth of the BYOD phenomenon, as well as cloud-based network and application delivery are strong drivers for the continued adoption of Meru Technology.

According to IDC the key verticals where we are focus, education, healthcare and hospitality are projected to grow from $1.8 billion in 2013 to $2.5 billion in 2016, and are also areas where we believe Meru’s wireless virtualization architecture has a clear advantage over the competition. To capitalize on these opportunities we have appointed experience Meru executives to general manager’s role for these verticals.

Focusing on the education, healthcare and hospitality market offers multiple benefits including the fact that these categories typically are progressive with clear drivers for adoption of advanced solutions such as ours.

In addition they push the boundaries of what’s possible and necessary in mobility since their business processes and their customers demand the best solution available. In addition to our vertical focus, we’re increasing our efforts with our channel partners to multiply our reach in the marketplace.

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