Meru Networks Reports Third Quarter 2011 Financial Results

Record products and services revenues of $23.3 million, up 21% Y-Y

Total installed base of over 5,500 customers

Oct 26, 2011, 16:05 ET from Meru Networks, Inc.

SUNNYVALE, Calif., Oct. 26, 2011 /PRNewswire/ -- Meru Networks, Inc., (NASDAQ: MERU), today announced its financial results for the quarter ended September 30, 2011.

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Third Quarter Fiscal Year 2011 Financial Results

Total revenues for the third quarter of 2011 were $23.8 million, up 9% from $21.8 million in the third quarter of 2010. Products and services revenues (excluding ratable revenues) for the third quarter of 2011 were $23.3 million, up 21% from the $19.3 million reported in the third quarter of 2010.  Products revenues for the third quarter of 2011 were $20.1 million, up 20% from the $16.7 million reported in the third quarter of 2010.    

Net loss as reported in accordance with U.S. generally accepted accounting principles (GAAP) was $5.4 million for the third quarter of 2011, or a net loss of $0.31 per basic and diluted share, compared to net loss of $797,000, or $0.05 per basic and diluted share, for the same period of 2010. GAAP results for the third quarter of 2011 included stock-based compensation expense of $1.6 million and amortization of intangible assets related to the acquisition of Identity Networks of $24,000. GAAP results for the third quarter of 2010 included stock-based compensation expense of $1.1 million.

Meru reported third quarter fiscal year 2011 non-GAAP net loss of $3.7 million, or a net loss of $0.21 per basic and diluted share, compared to non-GAAP net income of $342,000, or $0.02 per basic and diluted share, for the same period of fiscal year 2010. Non-GAAP results exclude the impact of stock-based compensation for both periods, and amortization of intangible assets related to the acquisition of Identity Networks for the third quarter of fiscal year 2011.  Please refer to the reconciliation of Meru's GAAP to non-GAAP results provided at the end of this release.

Third Quarter Highlights

  • Completed the acquisition of Identity Networks. The technology-focused transaction fills and complements Meru's family of software products with an industry-leading, robust guest management and identity solution that expands Meru's branded security offering.  
  • Customer count now over 5,500 worldwide, an increase in the installed base of approximately 8% from the end of the prior quarter.
  • Notable third quarter wins and production deployments include:
    • One of the largest global hotel chains with approximately 100 hotels in Europe.
    • An international airport in Canada.
    • An additional number of ships with a world-renowned cruise line.
    • A large state university in the Southeast United States.
    • A large school district in Korea.
    • A publicly traded global process manufacturing company.
    • Selection for deployment in a major league baseball team's new stadium.
  • Announced upgrades to the Meru E(z)RF Network Management Suite and introduced the new SA2000 Network Management appliance.  The combination of solutions streamlines management and optimization of large wireless networks and gives administrators the ability to easily provision, test, troubleshoot and optimize wireless networks for higher overall quality of service while reducing IT overhead and cost.  

"We are pleased with our financial results and the progress we have made over the past three months executing our strategy," said Ihab Abu-Hakima, president and chief executive officer of Meru Networks.  "The acquisition of Identity Networks has added significant new capabilities to and complements the Meru portfolio of products.  Additionally, we are very excited about the broad expansion of and enhancement to our product portfolio that we recently announced, including System Director 5, the MC3200 and MC4200 controllers and the new AP400 access point product line.  We believe these new products further extend the competitive advantage of Meru's highly differentiated network-in-control architecture and provide the industry's best-in-class mobility solution for the enterprise."  

"We reported record revenues in the third quarter." said Brett White, Chief Financial Officer of Meru Networks.  "And, as we continue to make investments in growing the business we have maintained a strong balance sheet with a solid cash position, healthy DSOs and no debt."

Conference Call Information

Meru will host a conference call for analysts and investors to discuss its third quarter results, today, October 26th at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).  To join the live call, please dial (877) 852-2926 (domestic) and (253) 237-1123 (international) and reference conference ID 14412333.

A telephone replay will be available two hours following the conclusion of the call for a period of 7 days and can be accessed by dialing (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The call ID for the replay is 14412333. The live and archived webcast of the third quarter 2011 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, Inc.

Founded in 2002, Meru Networks provides a virtualized wireless LAN architecture that cost-effectively delivers the performance, reliability, predictability and operational simplicity of a wired network, with the advantages of mobility. Meru's solution represents an innovative, yet standards-based approach to wireless networking that utilizes virtualization technology to create an intelligent and self-monitoring wireless network, enabling enterprises to migrate their business-critical applications from wired networks to wireless networks, to become all-wireless enterprises. Meru's solutions have been adopted in all major industry vertical markets, including Fortune 500 enterprises, healthcare, education, retail, manufacturing, hospitality and government. Meru is headquartered in Sunnyvale, Calif., and has operations in the Americas, Europe, the Middle East and Asia Pacific. For more information, visit Meru Investor Information or call (408) 215-5300.  

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements and information. All statements other than statements of historical facts that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward- looking statements.  Such statements include, but are not limited to those statements regarding the company's belief that its new products will extend its competitive advantage of Meru's highly differentiated network-in-control architecture and provide the industry's best-in-class mobility for the enterprise, as well as the company's ability to add new capabilities and enhancements to the company's portfolio of products.  We have identified some of these forward-looking statements with words like "believe," "may," "will," "should," "expect," "intend," "plan," "predict," "anticipate," "estimate" or "continue" and other words and terms of similar meaning. These forward-looking statements involve risks and uncertainties, including the risk that the market for Meru's solutions may not grow as the company expects; risks related to a lengthening customer approval processes, including lengthening of budget approval processes and funding uncertainty for domestic education customers; the risk that continuing investment in sales and marketing coverage and capacity will fail to diversify the company's customer mix or mitigate against the uncertainty of governmental funding; and the other risks and uncertainties described under the caption "Risk Factors" in Meru Networks' quarterly report on Form 10-Q filed with the Securities and Exchange Commission, or the SEC, on August 9, 2011, as well as additional reports filed with the Securities and Exchange Commission. These forward-looking statements also involve assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial conditions, results of operations, business strategy and financial needs. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update or revise these forward-looking statements, whether as a result of new information, new developments or otherwise.

Non-GAAP Financial Measurements

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Meru reports non-GAAP net income (loss), which excludes stock-based compensation expense, and amortization of intangible assets related to the company's acquisition of Identity Networks in the third fiscal quarter of 2011. Meru believes that its non-GAAP net income (loss) provides 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,

2011

2010

ASSETS

CURRENT ASSETS:

 Cash and cash equivalents

$            41,669

$          62,270

 Short-term investments

4,999

4,999

 Accounts receivable, net

10,872

8,796

 Inventory

5,857

4,636

 Deferred inventory costs, current portion

47

1,273

 Prepaid expenses and other current assets

1,079

1,195

          Total current assets

64,523

83,169

Property and equipment, net

1,186

763

Goodwill

1,658

-

Intangible assets, net

766

-

Deferred inventory costs, net of current portion

38

77

Other assets

1,679

359

TOTAL ASSETS

$            69,850

$          84,368

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$              5,263

$            4,302

Accrued liabilities

11,002

10,694

Long-term debt, current portion

-

2,808

Deferred revenue, current portion

10,661

12,723

Total current liabilities

26,926

30,527

Deferred revenue, net of current portion

4,278

3,923

Total liabilities

31,204

34,450

STOCKHOLDERS’ EQUITY:

Preferred stock

-

-

Common stock

9

8

Additional paid-in capital

252,484

245,160

Accumulated other comprehensive loss

(111)

(27)

Accumulated deficit

(213,736)

(195,223)

Total stockholders' equity

38,646

49,918

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$            69,850

$          84,368

MERU NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

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

Three months ended September 30,

Nine months ended September 30,

2011

2010

2011

2010

REVENUES:

 Products

$      20,096

$      16,710

$      54,551

$      45,727

 Support and services

3,155

2,571

9,415

7,431

 Ratable products and services

507

2,556

3,172

9,200

         Total revenues

23,758

21,837

67,138

62,358

COSTS OF REVENUES:

 Products

7,239

5,876

19,614

15,912

 Support and services

1,191

611

3,131

1,582

 Ratable products and services

333

1,311

1,824

4,928

         Total costs of revenues *

8,763

7,798

24,569

22,422

         Gross profit

14,995

14,039

42,569

39,936

OPERATING EXPENSES:

 Research and development *

3,718

3,124

10,533

8,960

 Sales and marketing *

12,869

8,653

32,926

24,168

 General and administrative *

3,655

2,801

9,999

7,816

 Litigation reserve

-

-

7,250

-

          Total operating expenses

20,242

14,578

60,708

40,944

Loss from operations

(5,247)

(539)

(18,139)

(1,008)

Interest expense, net

(45)

(182)

(199)

(660)

Other income (expense), net

18

12

86

(33,848)

Loss before provision for income taxes

(5,274)

(709)

(18,252)

(35,516)

Provision for income taxes

98

88

261

195

Net loss

$      (5,372)

$         (797)

(18,513)

(35,711)

Net loss per share of common stock, basic and diluted

$        (0.31)

$        (0.05)

$        (1.07)

$        (3.37)

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

17,519,217

15,916,542

17,296,904

10,595,022

*Includes stock-based compensation expense as follows:

      Costs of revenues

$           101

$             58

$           264

$           132

      Research and development

316

231

858

532

      Sales and marketing

636

308

1,587

687

      General and administrative

558

542

1,837

1,294

$        1,611

$        1,139

$        4,546

$        2,645

*Also includes amortization of acquisition-related intangible assets as follows:

      Costs of revenues

$             18

$              -

$             18

$              -

      Sales and marketing

6

-

6

-

$             24

$              -

$             24

$              -

MERU NETWORKS, INC.

Condensed Consolidated Statements of Operations

(GAAP to Non-GAAP Reconciliation)

(Unaudited)

(In thousands, except share and per share amounts)

Three months ended September 30,

Nine months ended September 30,

2011

2010

2011

2010

GAAP net loss

$      (5,372)

$         (797)

$    (18,513)

$    (35,711)

.

.

Plus:

a) Stock-based compensation

1,611

1,139

4,546

2,645

b) Adjustment of fair value of warrant liability

-

-

-

33,620

c) Litigation reserve

-

-

7,250

-

d) Amortization of acquisition-related intangible assets

24

-

24

-

Non-GAAP net (loss) income

$      (3,737)

$          342

$      (6,693)

$          554

GAAP net loss per share of common stock, basic

$        (0.31)

$        (0.05)

$        (1.07)

$        (3.37)

Plus:

a) Stock-based compensation

0.10

0.07

0.26

0.25

b) Adjustment of fair value of warrant liability

-

-

-

3.17

c) Litigation reserve

-

-

0.42

-

d) Amortization of acquisition-related intangible assets

-

-

-

-

Non-GAAP net (loss) income per share of common stock, basic

$        (0.21)

$         0.02

$        (0.39)

$         0.05

Non-GAAP net (loss) income per share of common stock, diluted

$        (0.21)

$         0.02

$        (0.39)

$         0.03

Shares used in computing basic non-GAAP net (loss) income per share of common stock

17,519,217

15,916,542

17,296,904

10,595,022

Shares used in computing diluted non-GAAP net (loss) income per share of common stock

17,519,217

17,611,167

17,296,904

16,128,719

GAAP loss from operations

$      (5,247)

$         (539)

$    (18,139)

$      (1,008)

Plus stock-based compensation:

Costs of revenues

$          101

$           58

$          264

$          132

Research and development

316

231

858

532

Sales and marketing

636

308

1,587

687

General and administrative

558

542

1,837

1,294

1,611

1,139

4,546

2,645

Litigation reserve

-

-

7,250

-

Amortization of acquisition-related intangible assets

24

-

24

-

Non-GAAP (loss) income from operations

$      (3,612)

$          600

$      (6,319)

$       1,637

MERU NETWORKS, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

Nine months ended September 30,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$    (18,513)

$    (35,711)

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

Depreciation and amortization

456

434

Stock-based compensation

4,546

2,645

Adjustment of fair value of warrant liability

-

33,620

Amortization of debt issuance costs

44

81

Bad debt expense

102

(57)

Changes in operating assets and liabilities:

Accounts receivable, net

(2,085)

679

Inventory

(1,221)

(205)

Deferred inventory costs

1,265

3,825

Prepaid expenses and other assets

46

(784)

Accounts payable

961

(899)

Accrued liabilities

(211)

3,353

Deferred revenue

(1,722)

(6,884)

Net cash (used in) provided by operating activities

(16,332)

97

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(855)

(489)

Purchases of short-term investments

(9,996)

-

Proceeds from maturities of short-term investments

10,000

-

Investment in non-marketable securities

(1,250)

-

Net cash paid in purchase of business

(2,002)

-

Net cash used in investing activities

(4,103)

(489)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from initial public offering, net

-

57,075

Proceeds from issuance of common stock

2,770

265

Proceeds from exercise of convertible preferred stock warrants

-

716

Proceeds from long-term debt and line of credit

-

4,986

Repayment of long-term debt and line of credit

(2,852)

(15,172)

Net cash (used in) provided by financing activities

(82)

47,870

Effect of exchange rate changes on cash and cash equivalents

(84)

17

NET DECREASE IN CASH AND CASH EQUIVALENTS

(20,601)

47,495

CASH AND CASH EQUIVALENTS -- Beginning of period

62,270

21,283

CASH AND CASH EQUIVALENTS -- End of period

$     41,669

$     68,778

Use of Non-GAAP Financial Information

In addition to the reasons stated above, which are generally applicable to each of the items Meru Networks excludes from its non-GAAP financial measures, the company believes it is appropriate to exclude certain items for the following reasons:

Stock-Based Compensation. When evaluating the performance of its consolidated results, Meru Networks does not consider stock-based compensation charges. Likewise, the Meru Networks management team excludes stock-based compensation expense from its operating plans. In contrast, the Meru Networks 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 Networks places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants. Meru Networks 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.

Media contact:

Investors contact:

Elyce Ventura or Kelli Tejada

Ingrid Ebeling or Scott Morgan

Eastwick Communications

Market Street Partners

(650) 480-4054

(408) 215-5658

merunetworksteam@eastwick.com

ir@merunetworks.com

SOURCE Meru Networks, Inc.



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