Meru Networks Reports Third Quarter 2013 Financial Results - Record quarterly non-GAAP gross margins of 66.0%

- Non-GAAP net loss reduced by over 45% year-over-year

- Cash balance increased by $2.7 million during the quarter to $34.7 million

SUNNYVALE, Calif., Oct. 30, 2013 /PRNewswire/ -- Meru Networks, Inc., (NASDAQ: MERU), a leader in Wi-Fi networking, today announced its financial results for the third quarter ended September 30, 2013.

Third Quarter 2013 Financial Results
Total revenues for the third quarter of 2013 were $24.4 million, down 3.9% from $25.4 million in the third quarter of 2012.  Product revenues for the third quarter of 2013 were $19.6 million, down 6.1% from the $20.9 million reported in the third quarter of 2012.  

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Net loss as reported in accordance with GAAP was $3.6 million for the third quarter of 2013, or a net loss of $0.16 per basic and diluted share, compared to a net loss of $5.8 million, or a net loss of $0.32 per basic and diluted share, for the same period of 2012.

Meru reported a third quarter 2013 non-GAAP net loss of $2.1 million, or $0.09 loss per basic and diluted share, compared to a non-GAAP net loss of $3.9 million, or $0.22 loss per basic and diluted share, for the same period of 2012. Non-GAAP results for the third quarter of 2013 exclude the impact of stock-based compensation expense of $1.3 million and amortization of other intangibles totaling $0.1 million. Non-GAAP results for the third quarter of 2012 exclude the impact of stock-based compensation expense of $1.8 million and amortization of acquisition-related intangibles of $0.1 million. Please refer to the reconciliation of Meru's GAAP to non-GAAP results provided at the end of this release.

"This quarter was marked by our customers' initial adoption of 802.11ac and demonstrated the traction that our product has in the market," said Dr. Bami Bastani, president and CEO, Meru Networks. "With an improved financial and technological foundation, we are well positioned as the industry transitions to the new standard." 

Conference Call Information

Meru will host a conference call for analysts and investors to discuss its third quarter 2013 results today, October 30, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To join the live call, individuals may do so by dialing (877) 852-2926 for domestic callers and (253) 237-1123 for international callers. The conference ID for the call is 77229049.

The live and archived webcast of the third quarter 2013 financial results conference call will also be available at the investor relations section of Meru's website at http://investors.merunetworks.com.

About Meru Networks
Meru Networks (NASDAQ: MERU) is a market leader in the development of mobile access and virtualized Wi-Fi solutions. Meru'sMobileFLEX wireless architecture addresses the ever-growing need for higher bandwidth and higher client densities. The Meru Identity Manager solution greatly simplifies secure device onboarding and the company's unique Context-aware Application Layers (CALs) enable dedicated channel assignments for specific applications, devices and usage scenarios. Meru customers include Fortune 500 businesses as well as leaders in education, healthcare and hospitality. Founded in 2002, Meru is headquartered in Sunnyvale, Calif., with operations in North America, Europe, the Middle East, Asia Pacific and Japan. Visit www.merunetworks.com or call (408) 215-5300 for more information.

© 2013 Meru Networks, Inc. Meru Networks and Meru are registered trademarks of Meru Networks, Inc. in the United States.

Cautionary Statement Regarding Forward Looking Statements

All statements other than statements of historical facts are statements that can be deemed forward-looking statements, including any statements of expectations or beliefs. 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. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include, among others: business and economic conditions and growth trends in the networking industry, our vertical markets and various geographic regions; competition in the industry; changes in overall information technology spending; and those risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by Meru, including under the caption "Risk Factors" in Meru's Quarterly Report on Form 10-Q filed with the SEC on August 12, 2013, and any subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to Meru as of the date hereof, and Meru assumes no obligation to update these forward-looking statements, except as required by law.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company believes it is appropriate to report certain non-GAAP financial measures.

The Company's non-GAAP financial measures include the adjustments as follows:

  • Stock‑Based Compensation. When evaluating the performance of its consolidated results, Meru does not consider stock‑based compensation charges. Likewise, the Meru management team excludes stock‑based compensation expense from its operating plans. In contrast, the Meru management team is held accountable for cash‑based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, Meru places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants. Meru believes it is useful to provide a non‑GAAP financial measure that excludes stock‑based compensation in order to better understand the long‑term performance of its business.
  • Amortization of intangible assets. The company excludes amortization of acquired intangible assets because it is non‑cash in nature and because the company believes that the non‑GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance and liquidity. In addition, excluding this item from various non‑GAAP measures facilitates internal comparisons to historical operating results and comparisons to competitors' operating results.
  • Other Items. The company excludes items such as litigation reserves expense, transition costs related to the previous chief executive officer and the amortization of a common stock warrant issued in connection with debt financing when evaluating the performance of its consolidated results. The company believes these costs are unusual in nature and the company does not expect them to recur in the ordinary course of its business. The company further believes these costs are unrelated to the ongoing operation of the business in the ordinary course.

The Company's non-GAAP financial measures include the followings:

  • Non‑GAAP net loss - Non-GAAP net loss is net loss as reported on the Company's condensed consolidated statements of operations, excluding the impact of stock‑based compensation expense, litigation reserves expense, amortization of intangible assets related to the company's acquisition of Identity Networks, transition costs related to the previous chief executive officer and amortization of the fair value of a common stock warrant issued in connection with debt financing.
  • Non-GAAP net loss per share of common stock, basic and diluted - Non-GAAP net loss per share of common stock, basic and diluted is net loss per share of common stock, basic, as reported on the Company's condensed consolidated statements of operations excluding the impact of stock‑based compensation expense, litigation reserves expense, amortization of intangible assets related to the company's acquisition of Identity Networks, transition costs related to the previous chief executive officer and amortization of the fair value of a common stock warrant issued in connection with debt financing.
  • Non-GAAP Gross margin - Non-GAAP Gross margin is gross margin as reported on the Company's condensed consolidated statements of operations excluding the impact of stock‑based compensation expense and amortization of intangible assets related to the company's acquisition of Identity Networks.
  • Non‑GAAP loss from operations - Non-GAAP loss from operations is loss from operations as reported on the Company's condensed consolidated statements of operations, excluding impact of stock‑based compensation expense, litigation reserves expense, amortization of intangible assets related to the company's acquisition of Identity Networks and transition costs related to the previous chief executive officer.

Meru believes that its non‑GAAP measures provide useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations. Meru also believes the non‑GAAP measures provide useful supplemental information for investors to evaluate its operating results in the same manner as the research analysts that follow Meru, all of whom will present non‑GAAP projections in their published reports. As such, the non‑GAAP measures provided by Meru facilitate a more direct comparison of its performance with the financial projections published by the analysts as well as its competitors, many of whom report financial results on a non‑GAAP basis. The economic substance behind Meru's decision to use such non‑GAAP measures is that such measures approximate its controllable operating performance more closely than the most directly comparable GAAP financial measures. For example, Meru's management has no control over certain variables that have a major influence in the determination of stock‑based compensation such as the volatility of its stock price and changing interest rates. In addition, Meru's management does not consider the amortization of intangible assets related to the company's acquisition of Identity Networks relevant when comparing its performance to prior periods. Meru believes that all of these excluded expenses do not accurately reflect the underlying performance of its continuing operations for the period in which they are incurred, even though these excluded items may be incurred and reflected in Meru's GAAP financial results.

The material limitation associated with the use of non‑GAAP financial measures is that the non‑GAAP measures may not reflect the full economic impact of Meru's activities. Meru's non‑GAAP measures may be calculated differently than non‑GAAP financial information disclosed by other companies. Accordingly, investors are cautioned not to place undue reliance on non‑GAAP information.

 

MERU NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)










September 30,


December 31,




2013


2012

ASSETS




CURRENT ASSETS:




  Cash and cash equivalents

$           34,654


$           22,855

  Accounts receivable, net

10,592


15,040

  Inventory

6,164


8,852

  Prepaid expenses and other current assets

1,679


884

           Total current assets

53,089


47,631







Property and equipment, net

2,209


2,473

Goodwill

1,658


1,658

Intangible assets, net

193


403

Other assets

1,927


2,024

TOTAL ASSETS

$           59,076


$           54,189







LIABILITIES AND STOCKHOLDERS' EQUITY 









CURRENT LIABILITIES:





Accounts payable

$            2,606


$            3,027


Accrued liabilities

12,035


13,053


Long-term debt, current portion

3,581


3,197


Deferred revenue, current portion

13,395


12,183



Total current liabilities

31,617


31,460







Long-term debt, net of current portion

3,775


6,499

Deferred revenue, net of current portion

5,923


6,107

Other liabilities

1,128


530



Total liabilities

42,443


44,596







STOCKHOLDERS' EQUITY:





Preferred stock

-


-


Common stock

11


9


Additional paid-in capital

280,443


262,887


Accumulated other comprehensive loss

(582)


(298)


Accumulated deficit

(263,239)


(253,005)



Total stockholders' equity

16,633


9,593







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$           59,076


$           54,189







 

 

MERU NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except for share and per share amounts)










Three months ended


Nine months ended


September 30,


September 30,


2013


2012


2013


2012

REVENUES:








  Products

$      19,634


$      20,910


$     61,910


$     57,009

  Support and services

4,752


4,432


13,585


12,151

  Ratable products and services

14


44


91


136

          Total revenues 

24,400


25,386


75,586


69,296









COSTS OF REVENUES:








  Products

6,567


7,191


21,251


19,791

  Support and services

1,853


1,764


5,517


4,737

  Ratable products and services

8


24


47


79

          Total costs of revenues *

8,428


8,979


26,815


24,607









          Gross margin

15,972


16,407


48,771


44,689









OPERATING EXPENSES:








  Research and development *

3,726


4,072


11,388


11,611

  Sales and marketing *

12,306


13,830


36,074


44,383

  General and administrative *

3,036


3,496


9,614


11,729

  Litigation reserve

-


-


-


2,350

           Total operating expenses

19,068


21,398


57,076


70,073









Loss from operations

(3,096)


(4,991)


(8,305)


(25,384)









Interest expense, net *

(414)


(721)


(1,577)


(1,010)

Other income (expense), net

24


35


(27)


49

Loss before provision for income taxes

(3,486)


(5,677)


(9,909)


(26,345)









Provision for income taxes

97


119


324


410

Net loss

$       (3,583)


$       (5,796)


$    (10,233)


$    (26,755)









Net loss per share of common stock, basic and diluted

$        (0.16)


$        (0.32)


$        (0.48)


$        (1.50)









Shares used in computing net loss per share of common stock, basic and diluted

22,525,060


18,014,335


21,465,492


17,854,199

























*Includes stock-based compensation expense as follows:








       Costs of revenues

$            86


$            73


$          185


$          251

       Research and development

175


300


545


909

       Sales and marketing

446


638


1,565


2,176

       General and administrative

636


760


2,256


2,456


$        1,343


$        1,771


$       4,551


$       5,792









*Includes amortization of acquisition-related intangible assets as follows:








       Costs of revenues

$            52


$            52


$          157


$          157

       Sales and marketing 

13


20


53


60


$            65


$            72


$          210


$          217









*Includes chief executive officer transition costs as follows:








       General and administrative

$             -


$             -


$            -


$          911









*Includes amortization of common stock warrant issued 








    in connection with debt financing as follows:








       Interest expense, net

$            38


$            53


$          125


$           69









 

 

MERU NETWORKS, INC.

GAAP to Non-GAAP Reconciliation

(Unaudited)

(In thousands, except share and per share amounts)












Three months ended


Nine months ended



September 30,


September 30,



2013


2012


2013


2012










GAAP net loss

$       (3,583)


$      (5,796)


$    (10,233)


$    (26,755)




.




.


Plus:









a) Stock-based compensation

1,343


1,771


4,551


5,792


b) Litigation reserve

-


-


-


2,350


c) Amortization of acquisition-related intangible assets

65


72


210


217


d) Chief executive officer transition costs

-


-


-


911


e) Amortization of common stock warrant issued  in connection with debt financing

38


53


125


69

Non-GAAP net loss

$       (2,137)


$      (3,900)


$      (5,347)


$    (17,416)










GAAP net loss per share of common stock, basic

(0.16)


(0.32)


$       (0.48)


$       (1.50)










Plus:









a) Stock-based compensation

0.06


0.10


0.21


0.33


b) Litigation reserve

-


-


-


0.13


c) Amortization of acquisition-related intangible assets

0.01


-


0.01


0.01


d) Chief executive officer transition costs

-


-


-


0.05


e) Amortization of common stock warrant issued  in connection with debt financing

-


-


0.01


-










Non-GAAP net loss per share of common stock, basic and diluted

$        (0.09)


$        (0.22)


$       (0.25)


$       (0.98)










Shares used in computing basic and diluted non-GAAP net loss









per share of common stock

22,525,060


18,014,335


21,465,492


17,854,199



















GAAP gross margin

$      15,972


$     16,407


$     48,771


$     44,689










Plus:









Stock-based compensation

86


73


185


251


Amortization of acquisition-related intangible assets

52


52


157


157









Non-GAAP gross margin

$      16,110


$     16,532


$     49,113


$     45,097



















GAAP loss from operations

$       (3,096)


$      (4,991)


$      (8,305)


$    (25,384)










Plus stock-based compensation:









Costs of revenues

86


73


185


251


Research and development

175


300


545


909


Sales and marketing

446


638


1,565


2,176


General and administrative

636


760


2,256


2,456



1,343


1,771


4,551


5,792











Litigation reserve

-


-


-


2,350


Amortization of acquisition-related intangible assets

65


72


210


217


Chief executive officer transition costs

-


-


-


911










Non-GAAP loss from operations

$       (1,688)


$      (3,148)


$      (3,544)


$    (16,114)










 

 

MERU NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)














Nine months ended






September 30,






2013


2012

CASH FLOWS FROM OPERATING ACTIVITIES:





Net loss

$    (10,233)


$    (26,755)










Adjustments to reconcile net loss to net cash provided by (used in) operating activities:






Depreciation and amortization

1,155


968



Stock-based compensation

4,551


5,792



Accrued interest on long-term debt

673


414



Amortization of issuance costs

178


98



Provision for (recovery of) bad debt

(5)


25



Changes in operating assets and liabilities:







Accounts receivable, net

4,452


7,608




Inventory

2,688


(3,522)




Prepaid expenses and other assets

(832)


(454)




Accounts payable

(421)


(3,146)




Accrued liabilities

(987)


(46)




Deferred revenue

1,027


1,257













Net cash  provided by (used in) operating activities

2,246


(17,761)









CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment

(832)


(2,343)


Proceeds from maturities of short-term investments

-


5,000













Net cash provided by (used in) investing activities

(832)


2,657









CASH FLOWS FROM FINANCING ACTIVITIES:





Proceeds from the issuance of common stock, net of offering costs

12,574


-


Proceeds from long-term debt, net of issuance costs

-


11,489


Proceeds from exercise of stock options 

249


73


Proceeds from employee stock purchase plan

358


279


Taxes paid related to net share settlement of equity awards

(174)


(114)


Repayment of long-term debt 

(2,517)


(788)













Net cash provided by financing activities

10,490


10,939










Effect of exchange rate changes on cash and cash equivalents

(105)


3









NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

11,799


(4,162)









CASH AND CASH EQUIVALENTS -- Beginning of period

22,855


35,259









CASH AND CASH EQUIVALENTS -- End of period

$     34,654


$     31,097









Investor contact: 
Ed Keaney 
Market Street Partners 
(415) 445-3238
ir@merunetworks.com

SOURCE Meru Networks, Inc.



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