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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

Meru Networks, Inc. (MERU) Q4 2012 Results Earnings Call January 29, 2013 5:00 PM ET

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.

The combined vertical market strategy and its strong commitment and support to, and from our channel partners enables Meru to offer best-of-breed solutions for our customers and reduce sales and marketing, operating expenses.

In Q4, we introduced two world-class products, the AP332, a near-Gigabit capacity access point and the MC6000, our highest capacity controller to enable enterprise to manage the BYOD capacity crunch.

The MC6000 set a new industry standard for wireless LAN capacity and performance. These products have started shipping in late November, with the AP332 being a strong contributor to our record revenues for fourth quarter, and is being deployed by a large hospital in Illinois and a large school district in the U.K. among many others.

Our identity manager is a widely deployed network access management solution that can be integrated with any vendor’s wired or wireless infrastructure to help IT define, automate and enforce BYOD and get back to its quality.

Identity manager is also giving us access to competitive accounts, and it was chosen over Aruba’s ClearPass at a large U.S. university that uses Aruba wireless LAN to provide guest access in their stadiums.

Another large university that uses the Cisco wireless and wired infrastructure is using identity manager to automate BYOD on boarding and guest access for 15,000 users. Meru’s identity manager was selected because of its ease of use and deployment, and it offers a fully integrated guest access and BYOD on-boarding solution. This and these wins are helping Meru establish relationship at competitive accounts, and we believe are putting us in a stronger position for the coming 802.11ac upgrade cycles.

Looking ahead, we anticipate the augment of enterprise grade 802.11ac likely in the second half of 2013, will be a catalyst for growth in the wireless LAN industry and will accelerate the transition of access networking budgets from wired to wireless.

We believe 802.11ac standard favors Meru’s single-channel virtualized wireless architecture, as Meru’s architecture is not limited by the reduced channel availability in this standard in order to maximize wireless capacity.

Furthermore, Meru is the only Wi-Fi network provider that can maximize our resources through channel layering. We expect 2013 will offer Meru multiple growth opportunities with regard to cloud and virtualization areas where Meru has already begun deploying solutions.

For instance, in March 2012 we announced that our controllers were available for deployment in VMware environments. We later announced that all of our software solutions such as E(z)RF Network Manager and identity manager where VMware ready. VMware is broadly considered the gold standard for cloud-based infrastructure solutions.

Meru’s cloud-based solutions are designed to lower cost, simplify deployment and operation and scale on demand. With education representing over 50% of our revenues, consistent with our prior first quarters, we expect Q1 revenues for 2013 to be seasonally lower than Q4, and in the range of $23 million to $25 million, well above Q1 of 2012.

Q2 and Q3 are traditionally strong buying quarters for education, and we expect that 2013 as a whole will be strong, with total revenues between $110 million and $120 million.

By maintaining tight controls on operating expense and continuing to innovate, we believe that we will be non-GAAP EBITDA break-even on a quarterly basis in the second half of 2013.

I will now turn the call over to our Senior VP of Worldwide Sales, Services and Support, Larry Vaughan for more on our vertical markets and channel strategy. Larry?

Larry Vaughan

Thank you, Bami. I appreciate the opportunity to discuss some of our recent key, including both our vertical market and channel strategy initiatives. As I think about the history of Wi-Fi, I’ve defined five phases gone through since its inception which was only about a dozen years ago.

From that initial first phase of just having convenient hotspots, for the second phase of broader use and then evolving through this third phase of pervasive and recently to the fourth phase of mission critical, I believe we’re now about to enter a fifth phase that I call the fault tolerant phase.

I call it fault tolerant because customers have virtually no tolerance for Wi-Fi not being available anytime, anywhere and all the time. The good news for Meru is that these customer demands play directly into our sweet sport. Meru architectures the design from the very beginning to address the increasing mobility demand from density issues that are now common place for today’s organizations and enterprises.

As Wi-Fi becomes more and more strategic for these enterprises, we have confidence that the benefits and unique capabilities of Meru solutions will become even more attractive to these customers. Wi-Fi is now at the forefront of CIOs minds everywhere and because of that we’ve been talking, seeing a lot more over the past 12 months on the application of Wi-Fi to our customer’s organization.

Because we are talking a lot more about applications, we have taken on a structured vertical market focused approach. We will open markets education, which Bami mentioned accounts for just over a half of our revenues, it remains a very strong market for Meru.

Previously mentioned trend such as BYOD, in addition to cloud-based application delivery and flip classroom learning environments are driving demand for Meru’s uninterrupted anytime anywhere access.

Flip classrooms are a new phenomenon where students watch lectures, often on their Wi-Fi devices such as an iPad or laptop on their own time anywhere, and then teachers facilitate discussions during the time they are in a classroom together.

It is a trend that is revolutionizing education and Wi-Fi is a big part of it. In Q4, we launched our Meru education grade solution or what we call MEG at Educause, which is the world’s premier education conference.

The Meru MEG solution is designed to help educational institutions, simplify the process of on-boarding and connecting students, faculty, staff and guests to the wireless network to deliver what we call uninterrupted learning.

Meru’s track record was excellent in vertical market focus on the educations space led to a highly competitive win in Q4 at the fourth largest school district in the U.S., with more than 395 schools and 345,000 students.

Another industry where we have strengthened our focus is in healthcare. The migration to electronic medical records or EMR is driving demand for access to those records via mobile devices, regardless of time and location.

Reliable, secure, high-performance network such as those provided by Meru are important to the proper functioning of these systems. And we are seeing that reflected in our success in this market. This increased focus help us win one of Michigan’s largest healthcare systems, which has five major hospitals and dozens of satellite care systems. In addition to this win, we have had many other healthcare wins around the world.

Also, our focus on collaboration with deployment of solution for the hospitality industry resulted in increased traction and key wins in the quarter. Number of users in this market include more than 20 properties and a leading global hotel chain, the result of our strong partnership with a major hospitality service provider in Europe and Asia as well as multiple premier properties in the Middle East.

Hotel guest surveys show that Wi-Fi continues to be among the most valued amenities at hotels worldwide. The BYOD phenomenon combined with growth in voice and video streaming on the internet is driving network upgrades in hotels across the world.

In another hospitality segment, Meru Wi-Fi solution deployments continue to be a service provider that manages 46 airports across Europe. In addition, one of the world’s largest cruise lines’ continued replacement of their incumbent vendor with Meru for many of their ships.

As we continue with our technological innovation and the application of our Wi-Fi solutions to our key verticals, we expect our sales channels to become stronger and stronger. To rate in this, in November of 2012, we launched a program to aggressively develop and reward our top partners globally with deregistration in centers, no cross training and free demo equipment for our highest level partners.

By continuing to deliver on our commitment to invest in our channel partners which helps them deliver world-class enterprise wireless solutions to their customers, we ensure both our success and theirs. We’ve heard from many partners that these actions help separate Meru from a long list of vendors who speak loudly to channel commitment while frequently failing to act.

We’ve also enhanced our customer service organization by adding advanced service offerings to help meet the demands of the customer as they enter this fault tolerant phase. We’ve branded our service, we call Meru Assure. Meru Assure allows us to customize a service offering to meet our customer’s needs which can include up to full-time on-site support.

In summary in 2012, we implemented a number of process improvements to position our sales and service organizations for success. And as Bami earlier mentioned, I’m also very proud of our sales team and channel partners as they produced a record Q4 resulting in 21% year-over-year revenue growth.

And with that, I’ll now turn the call over to Brett to discuss our financial results in more detail.

Brett White

Thanks Larry. Please note that the following discussions of our operating results will be on a non-GAAP basis, which excludes stock-based compensation expense, amortization of acquisition-related intangibles, amortization of the fair value of a common stock warrant issued in connection with debt financing and Chief Executive Officer transition cost. For reconciliation of GAAP to non-GAAP results, please refer the press release issued today and the supplemental financial information which is posted on our investor relations website.

As Bami mentioned, we are very pleased with our Q4 financial performance producing our third quarter sequential quarter of accelerating revenue growth rate and exceeding our guidance for revenue, bottomline and cash.

Total revenue for the fourth quarter was $28.2 million, up 21% year-over-year and above the top of our guided range of $25 million to $27 million. Product revenue was $23.8 million, up 20% from Q4 last year. Support and services revenue was $4.4 million up 25% from Q4 last year.

Approximately 57% of Q4 revenues were from the Americas, 34% were from EMEA and 9% were from Asia Pacific. Excluding the impact of ratable revenue, the Americas grew 12%, EMEA grew 52% and Asia Pacific declined 5% year-over-year. 96% of our shipments were through indirect channels, the remaining 4% direct.

Total non-GAAP gross margins in Q4 were 62% right at the midpoint of the gross margin guidance range of 61% to 63% that we provided on our last earnings call. The decline in Q3 was attributable primarily to product mix. As we also mentioned on our last call, we continue to expect our gross margins to improve going forward and continue to maintain our target gross margin range of 65% to 68%.

Last call, we committed to further reduce operating expenses sequentially and are pleased to report that we accomplish this goal. The reduction has more than offset the sequential increase resulting from year-end sales incentives in the fourth quarter.

Total non-GAAP operating expenses were $19.2 million, down 5% from Q4 last year and down 2% from last quarter better than our guidance. The year-over-year decrease relates primarily to a 28% decrease in G&A and a 2% decrease in sales and marketing expenses offset by an increase in our R&D investment of 2%.

Our Q4 non-GAAP net loss was $2.5 million or $0.13 per basic and diluted share better than the guided loss range of $0.17 to $0.25 and 54% reduction from the Q4 loss last year. Share count used for Q4 non-GAAP EPS was approximately 18.3 million shares.

We finished the quarter with $22.9 million in cash, cash equivalents and short-term investments and $9.7 million of debt on the balance sheet. In our last two earnings call, we said that would use $10 million or less cash in the second half of 2012 and so we are pleased to report that we beat this commitment by almost $2.5 million.

DSO was 49 days and within our targeted 45 to 50 day range that we mentioned last quarter. We believe our DSOs continue to best-in-class and a quality by receivables is excellent.

We ended the quarter with the full-time equivalent headcount of 391 and net decrease of eight from last quarter. Deferred revenue continues to build finishing the quarter with 18.3 million, up 5% sequentially.

Our customer account rose to over 7400 customers. I would like to provide some perspective on our customer amount metric. We count customers based on the buying entity. For example, many of our customers like school systems, purchase product for hundreds or even a thousand individual schools, yet we count them as one customer.

Many other vendors in our market account each of the individual schools as customers. If we were to adopt this methodology, our customer account would exceed 11,000. As Bami mentioned Q1 has traditionally been our seasonally softest quarter primarily due to the seasonal buying cycles of our core verticals and this is reflected in our guidance as we do not expect this Q1 to be any different.

We are currently estimating that total Q1 2013 revenues will be in the range of $23 million to $25 million representing 24% growth from last year at the midpoint. We expect non-GAAP gross margins to be in the 63% to 64% range, a sequential improvement from Q4 ‘12.

We expect operating expenses to continue to decline sequentially in Q1. Based on these estimates, we expect Q1 non-GAAP net loss of $3.4 million to $4.6 million or $0.18 to $0.25 per share based on the share count of approximately 18.5 million. This represents a 63% reduction in the non-GAAP operating loss from Q1 last year at the midpoint.

This concludes our prepared remarks. Operator, can you please open up the call for questions.

Question-and-Answer Session

Operator

My pleasure, sir. (Operator Instructions) Our first question comes from Kimberly Evers from Robert W. Baird. Your line is open.

Kimberly Evers - Robert W. Baird

Yeah. Hi, guys. Thanks for the question and congrats on the quarter and a great outlook.

Dr. Bami Bastani

Thanks, Kim.

Kimberly Evers - Robert W. Baird

Just a few questions if I could. Just thoughts on cal ‘13 as we approach, it looks like FQ1 is typical seasonality, and is the thought that we continue to see product strength and that sales force productivity kick in in second half? Or should we also consider some FQ2 benefit there from the education vertical business?

Brett White

So, our seasonality is, Q2 is strong, Q3 is strong, Q4 is a little bit stronger and in Q1 is by far the softest. So that’s what we are expecting to see here and that’s kind of how I would think about the annual guidance.

Kimberly Evers - Robert W. Baird

Okay. And Dr. Bami if I could, on the sales force productivity, I mean, its certainly seems like Meru’s firing on all cylinders here? Do you feel like we hit an inflection point and you have the right people in the right seats?

Dr. Bami Bastani

The answer is absolute, yeah. Our experienced team is firing on all cylinders. The younger ones in the company, the newer ones have over year under their belt now. So all in all we are working with a very seasoned and committed team.

But on top of that, we now have strong channel program and if you kind of flip back to the conversations we have had on the conference call. The whole thesis has been, we have to multiple our reach through our channel partners and that part of the strategy is playing big one.

Kimberly Evers - Robert W. Baird

Right. Fair enough. Quickly on verticals, it sounds like hospitality continues to strong? Are there other verticals you would highlight in the quarter or in your pipeline?

Dr. Bami Bastani

I would say all of them performed. Now if you look at the size of the market, education is the largest, followed by healthcare and hospitality. So we see acceleration in our business is that we believe its attributed to the fact that we are putting verticals GM’s on that market and our products mapped into those markets very nicely.

So in hospitality one of the major ISPs are international is using us, because it takes and I’m quoting, it take half the time to set up and deploy compared to the competition. And why, because with Meru we don’t have to do extensive site mapping like to do with the other guys and that’s time saving. So and that’s where we are, one is the capitalizing on the focus and intrinsic capabilities of technology.

Kimberly Evers - Robert W. Baird

Okay. Great. And then one more if I could and I’ll cede the floor, but just Brett on the cash balance, any additional comments, I know, we filed to make sure little earlier on, put some financial flexibility but we feel pretty good about trends here?

Brett White

Yeah. I mean, I think, clearly all the trends are right, revenue is going up, OpEx is going down, we beat our cash guidance, we’ve got great DSOs, 99% of our receivables are current. So I think everything pointing in the right direction and we are just continue to manage it.

Kimberly Evers - Robert W. Baird

Great, Thanks gentlemen.

Dr. Bami Bastani

Thank you.

Operator

Thank you. Our next question comes from Jason Willey of Cowen. Your line is open.

Jason Willey - Cowen

Yeah. Brett, I just wonder if you can provide a little more detail around the gross margin in the quarter and what exactly you mean by the mix impact?

Brett White

Sure. So last quarter we mentioned that, traditionally we have a pretty steady mix of controllers and APs. And this quarter we knew we had some business where the controller orders had been taken earlier in the year and AP orders were coming in the fourth quarter.

So we had a more APs as a percentage than usual, and then also, our AP mix was a little bit skewed towards some of the less profitable APs. So those two things, we saw coming and so that’s why we set our guidance and where we came and where we were.

We think gross margins go back up because we really think that’s was a big anomaly just on that that shipment mix and so that’s why we’re guiding Q1 margins up -- Q1 gross margins up, and sticking with our gross margin guidance for the target. And I think we get back to 64%, sorry, back to 65% which is where we were, I think, by the end of the year easily.

Jason Willey - Cowen

Okay. Was there anything related to geography on the mix or is it really just to start specific product related?

Brett White

The biggest chuck, the biggest impact was the AP mix kind of those two pieces of the AP mix that I mentioned.

Jason Willey - Cowen

Okay. And then on the cash, I mean, in the past you’ve, you provided some outlook in terms how you’re thinking about the cash and milestones that you’re looking for. I was wondering if you could help us out at all for 2013 and how we should be thinking about the cash burn particularly in the first half to the year?

Brett White

Sure. So for us the timing of collections is the key driver for us and that can easily swing the cash being all, it’s a couple million dollars between AR and cash in any particular month end. And we saw this in Q3 when we had a DSO of 20 days.

So really our focus is on cash use for the first half of year and we expect cash use for the first half of the year to be $6 million or less and then, as Bami mentioned, we’re going to past through EBITDA break-even in the second half.

Jason Willey - Cowen

Okay. And then with regards to that the EBITDA break-even, I think in the past you’ve indicated that, from a revenue standpoint, you kind of looking at something in that $28 million to $30 million from a break-even perspective and I realize that kind of ups and flows with the number of different variables. But I mean does that kind of still hold at these levels or is anything kind of change on that front?

Brett White

Yeah. I think, so, I think if you look at this quarter and if we done 65% gross margin this quarter, our operating loss had been less than a $1 million. So, I think for $20 million to $30 million range absolutely makes sense.

Jason Willey - Cowen

Okay. Great. And then, just one last question, just on the competitive landscape, I was wondering, Bami, perhaps, if you could provide a little more color, obviously you having some success out there, again some of the larger players. Just wondering if you’re seeing the dynamics change or perhaps you are seeing any more activity from newer players in the market or is it still kind of the same landscape?

Dr. Bami Bastani

Yeah. I mean, if you look at Cisco and Aruba, they represent in the 65% -- 63% to 65% of the market. So, and if you take our three verticals that represents about 45% of the market. So statistically speaking we are running to those guys more than anybody else. From time to time we do running to people like Aerohive in smaller education deals or ruckus in hospitality because they are present in those. But if I say statistically, it’s more often it just went over.

Jason Willey - Cowen

Do you expect to see any significant change from Cisco in terms of their ability to compete with you guys and some of the -- some of maybe your core, your core verticals given the marquee transaction?

Dr. Bami Bastani

Our experience in the past has been that could work in our favor. If you mix the smaller companies and big companies, it doesn’t matter what people say. It generally helps the rest of the industry. So we are positive about that.

Jason Willey - Cowen

All right. Thanks a lot, guys.

Dr. Bami Bastani

Yeah. Thank you.

Operator

Thank you. Our next question comes from Ryan Hutchinson of Lazard Capital Markets. Your line is open.

Trevor Bacon - Lazard Capital Markets

Hi, guys. This is Trevor Bacon in for Ryan Hutchinson. Just had a quick question on the accounts receivable, was there anything in particular that caused despite there and how should we think about that heading into ‘13? Thanks.

Dr. Bami Bastani

Yeah. So we traditionally run between 45 and 52 days DSO. Last quarter was an anomaly and that it drop to 20, because we had some really significant collection in the last day of the quarter. I don’t expect that to repeat.

So, 99% of our receivables are current and we just, you get more than half of our bookings in the second two months of a quarter. So that means you are going to carry the bulk of your business in AR over the next quarter. So, I think 45 to 50 days makes total sense.

Trevor Bacon - Lazard Capital Markets

Okay. Great. Thanks.

Operator

Thank you. Our next question comes from Rajesh Ghai of Craig-Hallum. Your line is open.

Rajesh Ghai - Craig-Hallum

Thanks. Thanks for taking my questions. Congratulations on the quarter and strong outlook for 2013 as well as your continuing momentum towards break-even. Just wanted to ask you guys about, how concerned are you about the debates that are happening in Washington with respect to your Q2, key cyclical is a big vertical for you guys. Is that concern at all going forward?

Dr. Bami Bastani

Let me take that first. Thank you for the compliments and what we see coming into 2013 relative to 2012, we see E-Rate money becoming available. So for us comparing last year to this year is an offer, and we are benefiting from that.

Investing in education regardless of politics always is going to be forefront of any state and any region. So we see even when there is budget discussions, even when sometimes they cut salaries, the technology budgets are reinforced and then we see that. For example, we talked about flip learning.

And USA today, yesterday on January 28 had a very nice article on teachers flip learning class model. We are very much into it. So the general trend mix was very optimistic about what’s going to happen in 2013 related to education funding.

Rajesh Ghai - Craig-Hallum

Good. And I just wanted to dive deeper into driven your commentary around 11ac. Can you talk most specifically about the timing in terms of when you think you can start seeing revenues from that upgrade cycle and how widespread do you think it can be?

I think you had mentioned something about replacement of wire LANs. To what extent do you think that will take off? Do you read, would it take off in the first situation? Do you think that could be a 2014 story?

But you also talked about having -- it being a outage and you giving the fact that you have a number of channels reduced given the higher width of a channel. How does it fairly help you in terms of compare, with outage compared to your competitors?

Dr. Bami Bastani

Yeah. From a timing, I think it’s important to be what I call at the table second quarter mid-year 2013. At the table meaning that there is going to be early adopters that will send out our fees and you got to be able to say here is my response code and here is my device, look at the performance. I’m here offering the solutions.

From a widespread market adoption, we still believe that 2013 -- ‘14, sorry, 2014 and beyond phenomenon. But if you are not in the early stage ceding the feel then you may be left out and you have to struggle harder. So our strategy is to be out there demonstrating, sampling, showing people, data citing from second quarter of 2013 with real products that show their performance.

Now, as you know, regarding wires and wireless, the performance of 802.11ac takes us completely to a next stage. It’s almost triple to 802.11 and even in wireless backhaul, we are getting questions as we have to answer webinars on 802.11ac and I ask people that it looks like the speed at which this can perform is going to even reshape the backhaul industry from wire to wireless.

So the quotation is there. Adoption is going to be everybody’s and anybody’s good guess. We just want to be at the table at the right time with the right product.

Regarding intrinsic capability of our technology, the most prevalent suppliers today, they are expansion of hotspot. So they have to deal with this co-channel interference and do a jigsaw puzzle of channel 1, 6 and 11, with us -- with a virtual sale and channel layering. We have intrinsically an advantage and I call that the advantage our genius of Meru. I think what made the foundation of Meru and the thesis that started this company 10 years ago, that thesis is getting stronger and stronger as AC is coming around the corner.

Rajesh Ghai - Craig-Hallum

Great. Thank you. Congratulations.

Dr. Bami Bastani

Thanks.

Brett White

Thank you.

Operator

(Operator Instructions) As there appear to be no further questions in queue, I’d like to turn the call back over to CEO, Bami Bastani for any closing remarks.

Dr. Bami Bastani

Thank you. Our products realize that promise of higher performance, density, mobility and we believe our architecture is going to show off and show case it’s strength more and more as we look into future. That makes I think increasingly confident about our products, about our quality, about financial position.

More so and beyond that, looking at Q4 performance, I want to congratulate our employees, our channel partners. And I want to thank our customers for this phenomenal quarter. Over the last three quarters, we had consistently shown growth while reducing operating expenses and cash burns.

We have improved customer satisfaction to better processes. We have seen success in our go-to-market channel of strategies. Additionally, we have focused our market where we believe we have a high profitability of winning based on our wireless virtualization architecture.

We’re looking forward to a strong 2013. And just as a reminder while from time to time, we have different players and executive staff at the table. Any questions regarding the company should be addressed to Meru’s Investor Relations. We thank you for your participation in our earnings call today. Operator?

Operator

Thank you, Mr. Bastani and thank you ladies and gentlemen for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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