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Meru Networks, Inc. (MERU)

Q3 2012 Earnings Conference Call

October 24, 2012 05:00 PM ET

Executives

Dr. Bami Bastani - President and CEO

Brett White - CFO

Sarosh Vesuna - General Manager, Education

Steve Pasko - Market Street Partners

Analysts

Jayson Noland - Robert W. Baird & Co.

Jason Willey - Cowen and Company, LLC

Erik Suppiger - JMP Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Meru Networks’ Q3 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 follow at that time. (Operator instructions) This conference is being recorded.

I’d like to introduce your host for today’s conference, Mr. Steve Pasko from Market Street Partners. Mr. Pasko, you may begin.

Steve Pasko

Thank you. Thank you for standing by and welcome to the Meru Networks third quarter of fiscal 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; Sarosh Vesuna, General Manager of Education 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,” “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 August 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, amortization of intangible assets related to the Company’s acquisition of identity networks in the third fiscal quarter of 2011, amortization of a common stock one 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 third quarter 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’ll 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 joining Meru’s third quarter 2012 earnings call. Today I will be discussing the following. One, continued improvement in our financial performance. Two, results of our vertical market focus and best-of-breed solutions in winning new customers and growing our installed base. Three, BYOD on-boarding and our industry leading Identity Manager offering for policy management and authentication and four, our 802.11ac positioning and implementation strategy.

On the financial performance front, I’m pleased to announce that the Company exceeded its revenue, gross margin and bottom line guidance for Q3. The Company’s Q3 total revenues were at $25.4 million, exceeding our guided range of $23 million to $25 million. We also reduced operating expenses sequentially and did an excellent job of managing cash all while maintaining our growth vector.

We continue to remain vigilant in addressing our key markets and improving the efficiency of our business as we optimize our cost structure and drive towards our goals of growth and profitability. We believe results from the last two quarters are solid evidence that our more efficient and focus sales organization has gained traction and it’s delivering improved results. Brett will discuss the numbers in greater detail after my comments.

Our vertical market focus and our best-of-breed solutions are leading to success in winning new customers and growing our installed base. During the third quarter we increased our worldwide number of customers to over 7,000, adding more than 400. These new customers came primarily from our focus verticals of: one, education; two, healthcare and three hospitality and entertainment.

In education, we have horned our compelling value proposition and marketing message. This market is widely interested in leveraging class room management systems to enhance the education process by using the smartphones, tablets and laptops in classrooms. A key challenge is the time wasted in getting all these devices to work reliably under wireless network. Our uninterrupted learning message have obtained partnerships with organizations such as LAN school have all resonated very well with educators.

Sales curve faces the typical BYOD on-boarding issues coming from 100s, if not 1000s of patients, doctors and administrators, all with their own mobile devices which must be authenticated, tracked and managed. Additionally, they face the ever increasing demands of on-boarding electronic medical records, EMR, in a BYOD environment and across both their wired and wireless networks. Our new access points and controllers are designed to handle density and mobility challenges and our Identity Manager products integrate the needed policy enforcement and authentication.

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