Ruckus Wireless' CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Ruckus Wireless (RKUS)

Ruckus Wireless Inc. (NYSE:RKUS)

Q1 2013 Earnings Conference Call

May 6, 2013 17:00 PM ET

Executives

Nicole Noutsios - Founder, NMN Advisors

Selina Lo - President & CEO

Seamus Hennessy - CFO

Analysts

Rajesh Ghai - Craig-Hallum

Kim Watkins - Morgan Stanley

Brian Modoff - Deutsche Bank

Ittai Kidron - Oppenheimer

Kent Schofield - Goldman Sachs

Mark Sue - RBC

Ryan Hutchinson - Lazard Capital Markets

Operator

Good day ladies and gentlemen and welcome to the Q1 2013 Ruckus Wireless Earnings Conference Call. My name is Brandy and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Nicole Noutsios, Investor Relations. Please proceed.

Nicole Noutsios

Thank you for joining us on today’s conference call to discuss Ruckus Wireless’ First Quarter 2013 Financial Results. This call is also being broadcast live over the web and can be found on the Investor Relations section of our IR website. With me on today’s call are Selina Lo, our President and Chief Executive Officer; and Seamus Hennessy, our Chief Financial Officer.

Please note that certain remarks we will make on the call will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including statements related to anticipated marketing conditions, market growth future financial results, current and new customer demand, customer deployment plans, geopolitical events, developments, business strategy, competitive environment and plans and objectives of management for future operations, technology developments and other future events.

Risks and uncertainties can cause actual results or the timing of the events to differ materially from those anticipated in these forward-looking statements. This includes the risks and uncertainties described from time to time under the caption risk factors and elsewhere in our SEC filings and report such as the (function) case filed with the U.S. Securities and Exchange Commission on March 5, 2013. In our SEC filings, we identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Ruckus Wireless does not assume any obligations to update these forward-looking statements stated in this call as a result of new information, future events or changes in its expectations expect as required by law. In addition, we will be presenting and discussing certain non-GAAP financial measures in this presentation. For a reconciliation of these non-GAAP financial measures to corresponding GAAP measures, please see today’s press release, which is posted on our website at www.ruckuswireless.com.

With that I will turn the call over to Selena.

Selina Lo

Thank you for joining us today. While we achieved a number of important milestones since the last earnings call, our Q1 revenue came in below our guidance. We recorded first quarter revenue of $57 million an increase of 27% year-over-year below our guidance of $62 million to $64 million.

Despite the revenue shortfall, non-GAAP EPS of $0.03 per share was inline with our guidance of $0.03 to $0.04 per share. Our Q1 revenue was impacted by delayed deployments with several service provider customers in the Americas as well as challenging marketing conditions in China.

We continue to actively engage with customers on these delayed projects and we are encouraged by our progress. In fact, we have received orders from several of these customers already since the quarter end.

However, we are finding that some of the delayed projects will take longer to realize than we have previously expected. We did not lose to competitors any service provider details we anticipated in Q1. We have not experienced any material change in the competitive environment. We believe that our fundamentals and growth drivers and the long-term market opportunity for Ruckus remain intact.

We continue to see strong market adoption of our products with 27% year-over-year revenue growth and over 70% growth in the Americas and Europe. We believe that the long-term market opportunity for Ruckus has not changed. The appetite for mobile Internet usage continues to expand and Wi-Fi continues to be a core enabler of this phenomenon.

According to the comScore “2013 Mobile Future in Focus Report” released in February, 93.6% of the time spent on life with tablets and 42% for smartphones is via Wi-Fi. Public access Wi-Fi is becoming a requirement for enterprises and service providers alike. The Ruckus BeamFlex Adoptive Antenna Technology is uniquely suited for interference and capacity challenges of public Wi-Fi networks.

Our Smart Wi-Fi solutions deliver carrier across scalability and enable mobile operators to seamlessly integrate Wi-Fi with their existing mobile core. These differentiations will continue to position us well against our competition as service providers roll out public Wi-Fi infrastructures.

We continue to build long-term momentum and pipeline in our service provider business. In Q1, we added 10 new service provider customers including the largest cable operator in Mexico. Also since the end of the quarter, we have received initial orders from three new strategic tier-1 mobile operators, two of them in the U.S, including Sprint’s Custom Network Solutions Group, who has teamed with Ruckus to deliver our Smart Wi-Fi products and services to enterprise, public sector, and Federal customers. While these strategic wins bode well for our future, it could take a number of quarters for design wins with large operators to turn into significant revenue.

Our enterprise business in Q1 performed to our expectations. We continue to generate positive momentum with the addition of 2700 new end customers bringing our total customer base to over 24,400 world-wide. This market continues to grow, and Ruckus has continued to strengthen its competitive position with our superior and differentiated Smart Wi-Fi technology.

According to the most recent Wireless LAN Report published by Dell'Oro Group, the total 2012 market revenues for enterprise and outdoor wireless LANs topped $3.7 billion, up 23% year-over-year. In the report, Ruckus posted the strongest growth amount of all wireless vendors with 74% year-over-year from 2011 to 2012.

We also had some notable wins in the enterprise market during the quarter. These included 23 properties in the Caribbean with Sandals Resorts International, a quick service restaurant chain with over 1000 locations in France, an 84-site hotel chain in Europe, multiple large arenas, stadiums, and convention centers, and the city of San Jose, California.

In addition, we announced a partnership with Intermec targeting the distribution center and manufacturing operations sector where our solutions can improve performance and streamline workflow.

On the product front, we continue to innovate and made a number of exciting announcements in Q1. Our SmartCell Gateway product is gaining customer traction, and we are receiving positive customer feedback. The SCG is now deployed in production by a number of operators including a tier-1 cable operator in the U.S., a tier-1 cable operator in Latin America, a managed service provider in Africa, and two tier-1 mobile operators in Asia.

In Q1, we introduced a range of new indoor and outdoor Smart Wi-Fi access points and software enhancements that are focused on helping customers deal with more devices and provide more capacity. Our new products include three stream sectorized outdoor access points as well as new indoor access points that support the use of 3G, 4G, or LTE backhaul.

In addition, our ZoneFlex 7982 access point took top marks in a non-vendor sponsored enterprise Wi-Fi stress test study by Wireless LAN Professionals Inc., further validating the power of our BeamFlex Adaptive Antenna Technology. For the hospitability industry, Ruckus also introduced the industry’s first concurrent dual-band Wi-Fi wall switch access point, the ZoneFlex 7055.

I’m disappointed with our Q1 revenue performance. However, our fundamentals remain intact, and we have confidence in our long-term growth drivers. We are winning more strategic Tier-1 service provider customers, and our enterprise business is robust. I remain excited about the future prospects for Ruckus. We have differentiated technologies and a strong advantage in the growing market for public Wi-Fi access equipment. We will continue to drive forward and focus on delivering value for our customers and shareholders.

Now, I would turn the call over to Seamus to discuss in more detail our financial results for the first fiscal quarter.

Seamus Hennessy

Thank you, Selina and thank you all for joining us today.

Unless specifically noted otherwise, we’re discussing all numbers except revenue on a non-GAAP basis which excludes stock-based compensation, amortization of intangibles and revaluation of preferred stock warrants. All share accounts will be on a diluted weighted average share basis, a full reconciliation of GAAP and non-GAAP information is contained in our financial results press release issued earlier today.

In Q1 2013, total revenue came in at $57.2 million, an increase of 27.2% year-over-year and a decrease of 7.9% sequentially. Product revenue was $53.3 million, up 25.3% year-over-year. Service revenue was $3.9 million, up 59.3% year-over-year. In Q1, Americas revenue grew 73.7 % year-over-year but decreased 10.9% sequentially and represented 44.5% of total revenue.

As previously stated, the sequential decrease in Americas revenue was primarily due to delayed deployments with several service provider customers. Our Q1 revenue grew 69.9% year-over-year and 0.8% sequentially and represented 27.3% of total revenue for Q1. Asia Pacific including Japan decreased 23.6% year-over-year and 10.6% sequentially and represented 28.3% of total revenue for Q1. The sequential decrease was primarily the result of less than expected sales in China and year-over-year decrease was primarily attributable to a large order by a service provider customer that are counted for approximately 27% of total revenue in the prior year.

Two of our distributors each accounted for more than 10% of revenue in Q1, one accounting for 13.5% and the other accounting for 11%. We had no-end customer that accounted for 10% or more in the quarter and is consistent with the prior two quarters. Gross margin in Q1 was 67.9%, up 399 basis points year-over-year and 174 basis points sequentially. Product gross margin was 69.6%, up 554 basis points year-over-year and 268 basis points sequentially of which approximately 150 basis points was a result of $2.6 million of product deferred revenue that was recognized with no related cost of product in the quarter. Our service margin was 45.7%, down approximately 1700 basis points year-over-year and down approximately 1100 basis points sequentially.

As discussed in the Q4, 2012 earnings call, the services gross margin change is driven by headcount and infrastructure investments in our services organization to support expected customer growth. Total headcount at the end of Q1 was 720, an increase of 51 from the start of the quarter and in line with our plan to invest in customer service, research and development and expansion of our global sales presence.

Q1 operating expense was $34.7 million or 60.6% of revenue. As percentage of revenue operating expenses were up 945 basis points year-over-year and up 731 basis points sequentially primarily resulting from lower revenue in the quarter. Our operating profit in Q1 was $4.2 million or 7.3% of revenue, a decrease of 546 basis points year-over-year and 556 basis points sequentially.

Our tax rate was 31% in Q1 and included $0.6 million retroactive tax benefits related to the extension of the Federal Research Credit in 2013. Non-GAAP net income for the quarter was $2.9 million or $0.03 per diluted share compared to $5 million or $0.07 per diluted share in Q1 2012. We had $94.3 million weighted average shares outstanding on a diluted basis in Q1.

On a GAAP basis, net income for the quarter was $0.03 million or $0.00 per diluted share on net income attributable to common stockholders compared to Q1 2012 net income up $3.7 million or $0.03 per diluted share based on net income attributable to common stockholders.

Turning to the balance sheet, we finished Q1 with cash and cash equivalents of $128.1 million, a decrease of $5.3 million over the prior quarter and an increase of $92 million over March 31, 2012. Cash used in operations in Q1 was $2.8 million. We ended Q1 with $42.3 million of accounts receivable, a sequential increase of $1.1 million, $13.2 million of accounts payable, a sequential decrease of $3 million and accrued compensation of $7.6 million, a sequential decrease of $1.8 million which is related to payout of year-end bonuses.

Day sale outstanding were 67, up from 61 in the prior quarter, we expect DSOs to recover to our long-term goal of 50 to 55 over the coming quarters. Ruckus’s inventory totaled $80.9 million at the end of Q1, a decrease of $0.1 million from the end of Q4.

Let me turn to our second quarter of 2013 guidance. As Selina mentioned earlier our enterprise business continues to experience positive momentum and we are pleased by our recent service provider customer wins. However, we are incorporating into our forecast factors such as the limited visibility into the China market and updated service provider deployment forecast. Therefore, we expect second quarter revenue to be in the range of $61 million to $64 million. Non-GAAP earnings per share are expected to be $0.03 to $0.04 using $94 million shares on a diluted basis. We expect gross margins to be in line with our prior historical trends, we expect our tax rate to be approximately 38% to 40%.

Now, we will open up the line for questions. Operator, can you please open up the line?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Rajesh Ghai with Craig-Hallum.

Rajesh Ghai - Craig-Hallum

Yes. Thanks. I just wanted to dwell upon the visibility long-term beyond the second quarter, if you could give us an idea of when you think the SmartCell opportunity is likely to result material revenue going forward, whether it’s in the U.S. or overseas and if you could dwell upon the challenging conditions you saw in China? Thanks.

Seamus Hennessy

So, I will tackle the first one and Selina will tackle the second part of the question. Right now, we are only providing guidance for one quarter a time, which is Q2. However, we remain confident in our long-term opportunity and especially with the new Tier-1 operators that became customers of Ruckus in the most recent quarter or this quarter, and we are excited about the long-term future. But right now we are only providing one quarter guidance at a time.

Selina Lo

So, let me supplement a little bit on the SmartCell question, operators are deploying SmartCell, and as we have said before, Wi-Fi, it’s the most mature SmartCell technology, and therefore operators are beginning to rollout Wi-Fi as part of their infrastructure, not just for hotspot purposes. So, we see that trend is already beginning. However, this is going to be a multi-year event. I referred to an article published by FierceBroadbandWireless in April, where they interviewed the Chief of AT&T’s SmartCell architecture, and he described that near term they are seeing the possibilities of SmartCell in trials. They are seeing a good performance. However, multi standard SmartCell is still at least a year away. And so, I believe that we are in the beginning phase of SmartCell rollout by operators, and this is a multi-year trend.

Rajesh Ghai - Craig-Hallum

Those two deals that – those three deals that you mentioned that you have the SmartCell Gateway in production, so those are – are they really in production or are they in the lab environment, and when do you think you might see some follow-on business around that initial action that you have seen at those service providers?

Selina Lo

Okay. So to clarify, we have -- we said that we won -- in Q1, we won three Tier-1 – strategic Tier-1 mobile operators, two of them are in the U.S. The SCG separately -- the SCG has been put into production by a number of operators, and I listed an example, a U.S. cable operator, a Latin American cable operator, two mobile operators in Asia, and a managed service provider in Africa. Those are examples of customers that have already put the SCG into production.

Now, long-term I think the SCG continues to be deployed, and it will just like all our products, when the operators are ready they will put it into production networks.

Rajesh Ghai - Craig-Hallum

Great. And, if you could dwell upon the challenging market conditions in China, is that just a general follow-up in demand or is that more competition?

Seamus Hennessy

No, we have seen some just market condition – softness in market conditions in China, and it really occurred after Chinese New Year. We are continuing to monitor the situation and monitor our visibility into those pipelines, but it is just general market conditions we saw in China.

Rajesh Ghai - Craig-Hallum

And my last question on the Sprint deal, is that ready for the enterprise market and when – what are your expectations as far as timing and magnitude of revenue from that deal? Thank you.

Selina Lo

I will start the answer, and I will let Seamus supplement on the revenue piece. So, already we have seen revenue from the Sprint partnership. This is with Sprint’s CNS Group. The deal is focused on providing Wi-Fi solutions for enterprise, public sector, and government organizations, and so, it’s a managed service type of deal, and we are very bullish on this kind of opportunity, I think, long-term opportunities like this through our Tier-1 operators will be very important to us.

Seamus Hennessy

In regard to the revenue, we have actually seen some initial momentum with Sprint, but with any relationship, it takes time to build long-term sustainable growth. But we are actually seeing a lot of positive momentum in a very, very short period of time with the relationship.

Rajesh Ghai - Craig-Hallum

All right, thanks.

Operator

Your next question comes from the line of Kim Watkins with Morgan Stanley.

Kim Watkins - Morgan Stanley

Thanks, thanks so much. I’m in for Ehud today. Just wanted to follow up on that question on China, can you just remind us what you are selling there, my recollection is you have done a couple of airports, some universities, but just remind us where you are selling and where you are seeing the softness , and you mentioned Seamus Chinese New Year, was that different than the seasonality you have seen in the past?

Selina Lo

So, let me start on that. So in China, our business is actually quite diversified. We sell to both enterprises in China as well as all three of the operators in China. On the enterprise side, it covers, airports, in fact, it’s more than a couple of airports, I think we have at least twenty airports that we are deploying in China. We do a lot of hotels, universities, high schools, and even some government and oil and gas activities.

So, in terms of the economic conditions in China, I think the one thing that’s slightly different this year is that Chinese New Year fell into the middle of the quarter, which essentially has reduced a number of selling weeks in China. And also, the recent change in leadership in China has some impact on state-owned businesses, for example the operators, the three carriers. So these are all kind of macro environmental conditions that have impacted China.

Kim Watkins - Morgan Stanley

Okay. That’s interesting and very helpful. And then on the service provider side, you mentioned that you have gotten -- some of the deployments are taking longer than you initially anticipated. When you talk to your customers about that, have you gotten to the bottom as to why that is? It seems like my impression at least is that these Wi-Fi builds are actually kind of at the top of the priority list because they relieve congestion on the wireless network, so I’m curious to understand a little bit better as to why they are taking a little bit longer to deploy?

Selina Lo

Yeah, so there are a variety of reasons, many of them are actually just constraints within the customer organizational constraints or timing constraints. To give you an example, there was one deal where we were awarded five stadiums in a South American country, and this was part of a complete infrastructure upgrade for the stadiums, and in the quarter, the Wi-Fi portion of the installation kept getting delayed and delayed, and finally at the end of the quarter, we were told that Wi-Fi will be pushed out beyond – actually a sporting event that is coming up.

So, that’s an example of just delay in deployment, now that said, our partner just got the order for the first Wi-Fi -- for the first stadium for Wi-Fi installation. So, it is just project delays in this case.

Seamus Hennessy

We didn’t see any competitive losses, none of the projects have been cancelled. But we are just seeing some, just some more tactical delays in regards to deployment and Selina is giving you one good example.

Kim Watkins - Morgan Stanley

Okay. That’s helpful. And then just two quick clarifications for you Seamus. You mentioned something about on product gross margin 150 basis point impact due to some deferred revenue with no cost associated with it. Can you just explain or talk us through, usually think about matching with revenue and cost coming through at the same time so how did come through at zero cost?

Seamus Hennessy

Yeah, that was $2.6 million related to upgrade revenue for future products that we were able to recognize in this quarter and primarily future enhancements so there was no cost to goods.

Kim Watkins - Morgan Stanley

Is that something that we should expect in the future or I mean does it come through, is it somewhat forecasted?

Seamus Hennessy

It is a typically forecast and especially with service providers. This was a one time event this quarter.

Kim Watkins - Morgan Stanley

Okay. One time so not something that would be regular going forward?

Seamus Hennessy

It’s not very regular.

Kim Watkins - Morgan Stanley

Okay. One last quickie, R&D tax credit, and that’s what you said the benefit this quarter?

Seamus Hennessy

It was $0.6 million.

Kim Watkins - Morgan Stanley

Thank you very much. Thank you.

Seamus Hennessy

Thank you.

Operator

Your next question comes from the line of Brian Modoff with Deutsche Bank.

Brian Modoff - Deutsche Bank

Hi, guys, few question. So last quarter APAC was 29% of your revenue, what percent of share – of your revenue was China just kind of give us an idea kind of it’s impact overall on your business?

Seamus Hennessy

If we haven’t broken it out in the past and we are not breaking it out.

Brian Modoff - Deutsche Bank

I know just kind of ballpark.

Seamus Hennessy

But its in the high single digits.

Brian Modoff - Deutsche Bank

So kind of 8% to 9%, okay. And then can you talk about you mentioned this is going to happen over time the roll out with this new year U.S. carriers, can you guess an idea of the timing and when do you expect it to become more significant.

Selina Lo

So, they all differ. And it’s important to note that of course with big service providers design win to material revenue can talk multiple quarters. In general, basically, the design wins for a small deployment, so that they can get a sense of the result. And then they will open up to potentially other deployments. So I don’t, I can’t provide very specific feedback on that. But in general, I think it’s encouraging because (multiple) these operators, the scale can be massive, but it will take multiple quarters to develop.

Brian Modoff - Deutsche Bank

And you said fixed carriers, right?

Selina Lo

No, no, two U.S. mobile tier-1 mobile operators.

Brian Modoff - Deutsche Bank

Tier-1 mobile operator got it, okay.

Selina Lo

Yeah.

Brian Modoff - Deutsche Bank

Okay. And then can you talk a little bit about multimode SmartCell, are you talking about a year from now for you see, a year away before you start your deployment. Can you (inaudible) people, how you are preparing for that. I think what your product line is looking like and how do you see the competition a year out, when you got bigger players like Cisco and Huawei and others offering kind of these mutlinodes SmartCells?

Selina Lo

Yeah, actually in SmartCell the competition is, if you were talking about the cellular side the 3G and 4G. The competition is pretty…

Brian Modoff - Deutsche Bank

3G, Wi-Fi 3G and 4G kind of the…

Selina Lo

Right.

Brian Modoff - Deutsche Bank

There is the competition of all.

Selina Lo

Right, right. Right, so there are quite number of players, of course, the Ericsson, AOU NSN, Huawei, ZTE and Cisco obviously with the acquisition of Ubiquisys and there are others like Samsung and everybody. And in fact, Qualcomm is trying to implement this such that it becomes a commodity technology over time. I believe that for Ruckus, we do the best job in Wi-Fi and we remain confident that we will be the Wi-Fi supplier to service providers who need to deal with the public interference who need their Wi-Fi networks to be (carried across) to perform reliably and provide consistent experience to their subscribers.

So, our strategy is to keep – continued to extend our competitive strength in Wi-Fi and in the form of a multi-standard SmartCell package, we have developed a SmartCell 8800 access point that today offers Wi-Fi as well as SmartMesh backhaul as a way that to backhaul both Wi-Fi and cellular traffic. In this access point, there is a slot that is, that is ready for our SmartCell add-on in the field. We actually do have operators, trailing that right now. The SmartCell is provided by a partner of ours and I cannot disclose who it is. But also, a big part of our strategy is to take our Wi-Fi technology and provided to the SmartCell suppliers as part of their multi-standard SmartCell. So, we are taking a two prong approach. We know that we do the best job in Wi-Fi and so we provide our own package and we will also integrate our Wi-Fi technology into other players packages.

Brian Modoff - Deutsche Bank

And then last question kind of along the Q2 guidance, can you kind of give us some breakdown of what is in terms of lower revenues, what is the cause, is it China, we know you said that kind of give us some an idea of the magnitude of each one and how its affecting the guide down?

Seamus Hennessy

Yeah. We’re not breaking out the magnitude between the China and service providers but we’ve taken a very cautious approach into the visibility in China given our limited visibility at this stage. And we’ve actively engaged with our service provider, our service providers and actively engaged with the sales team to understand the revised deployment with those Americas service providers. So, we’re taking a very cautious approach in regards to our Q2 guidance, Brian.

Brian Modoff - Deutsche Bank

Okay, all right. I will pass it on. Thank you very much.

Seamus Hennessy

Thanks Brian.

Operator

Your next question comes from the line of Simona Jankowski with Goldman Sachs.

Selina Lo

Hi, Simona.

Kent Schofield - Goldman Sachs

Great, thank you. Hi, Selina, this is actually Kent Schofield in for Simona.

Selina Lo

Hi.

Kent Schofield - Goldman Sachs

Hope you guys are well. I want to give you a quick question and the fact that we haven’t spoken about enterprise much yet, you said that it sounds, that was kind of in line with your expectations but can you talk a little bit about what you saw from a geographic standpoint, from a vertical standpoint in terms of some of the strength and weakness?

Selina Lo

So, I’ll talk about the verticals, I will let Seamus address the geography. On the vertical side, we continue to hold our strength in hospitality and in education. But we also are seeing a lot of stadium, convention center basically venues that require public Wi-Fi. We’re seeing that emerged as a pretty quickly as well as the Intermec announcement, the partnership announcement with Intermec is really also starting to generate momentum. We target to go after the distribution centers and the manufacturing sector which now with all the Smartphones and Smart devices really need Wi-Fi coverage and everywhere and they need high performance Wi-Fi.

Seamus Hennessy

And just in regard for the enterprise. It was a strong quarter across the board in all regions with the exception of the softness, we actually saw in China and we added over 2700 new end-customers last quarter and saw very strong repeat customer base to as well consistent what we see in the past. So, our enterprise business wasn’t in line with our expectations other than probably to seek the softness that we saw in China.

Kent Schofield - Goldman Sachs

And you mentioned in the previous quarter’s customer add do we have the year-on-year?

Seamus Hennessy

Let me get it for you and I’d like to tune on that.

Kent Schofield - Goldman Sachs

Okay. And as a follow-up, as we think about OpEx expenditures going forward, if the service provider delays continue for any extended period of time, should, we think that there should be some slowdown in terms of your OpEx build out or is that given the strength and enterprise we should still see stronger there as well?

Seamus Hennessy

We’re continuing to invest in both R&D and sales and marketing but we’re taking a cautious approach in certain geographical location from early China. But we are taking steps to continue to maintenance EPS and continue to invest in areas that we believe are critical for the long-term growth of the business but we will continue to monitor OpEx.

Kent Schofield - Goldman Sachs

Okay, thank you.

Operator

Your next question comes from the line of Ittai Kidron with Oppenheimer.

Selina Lo

Hi, Ittai.

Seamus Hennessy

Hi, Ittai.

Operator

If your line is muted, please unmute your line.

Ittai Kidron - Oppenheimer

Can you hear me now?

Selina Lo

Yeah.

Seamus Hennessy

We (inaudible).

Ittai Kidron - Oppenheimer

Okay. Sorry about that. Selina, you talked about, you’d given example one customer in a stadium that you are going to get deployed in the Wi-Fi probably got delay because of our sporting event and now your orders are starting to come in. But as you ask those North American customers, the carrier as to why, why did they delays, I mean, is there any clear answer have priorities change, is it just a cautiousness given macro. I’m just trying to – I’m sure that you went to every sales person and he said all the account find out why and can give an explanation to me. So outside of just a bunch of them doing at the same time, was there any specific commentary behind it as to (Wi)?

Selina Lo

The (Wi) is really a variety. What we have found is that there is not one single reason. That’s why we said that the service provider delays are not caused by competitive outlook or they are not caused by any particular one reason. We simply in some cases runway last quarter, in other cases, the customer reorganized is that kind of stuff.

Ittai Kidron - Oppenheimer

Okay, so, it’s not that, macro was a common theme as well with the carriers?

Selina Lo

I don't think so. The macroeconomic, I’m sure from a global basis is always a concern with large organizations. But, we can actually pinpoint for the account that were delayed we don't believe that macro is a driving factor.

Ittai Kidron - Oppenheimer

Very good. And back to the enterprise side where have done very well in the quarter. Can you talk about the competitive environment in that segment, have you seen any changes, what players are becoming more aggressive versus less aggressive, I’m just trying to get an understanding of how the other competitive landscape is shaping up over there?

Selina Lo

There is not any substantial change competitively, we continue to see Cisco, Aruba in some cases HP, we don’t see much of Motorola or (inaudible). So, it’s pretty consistent with the prior quarter.

Seamus Hennessy

Yeah, I’m just, to go back to just add to the question Kent asked we added 2700 new end customers last quarter and over 2000 in the same period last year. So, we continue to experience strong growth in that segment of that market.

Ittai Kidron - Oppenheimer

Seamus when you look at your revenue from enterprises, they are away for you to parse out what percent of it. I know you don’t give the split between enterprise and service provider, just fine. But, if you look at your service provider business what portion of it is recurring, return in customer versus new customers, just we get a sense of sort of the build there?

Seamus Hennessy

Yeah. We haven’t given that percentage before in the past. But, we do see a significant portion of our enterprise business, customers that actually come back and actually revive. For 2012, we stated that enterprise was approximately 2/3rds of our business and service provider was 1/3rd. But, within the enterprise, we do see our customers – a good percentage of our customers come back and repurchase quarter-on-quarter as they continue to build out or interject more capacity.

And on the service provider side, we see a lot of those customers continue to come back quarter-on-quarter.

Selina Lo

The majority of them are really recurring customers.

Ittai Kidron - Oppenheimer

Very good. All right, good luck guys.

Seamus Hennessy

Thank you. Bye.

Selina Lo

Thank you.

Operator

Your next question comes from the line of Mark Sue with RBC.

Selina Lo

Hi, Mark.

Mark Sue - RBC

Hi, how are you? If I’m looking at the near term challenges in China, the back half if that leaves the indications from the major service providers out there CapEx appears very strong. Are you starting to see the CapEx indication include Wi-Fi by the major carrier customers who you already do work with particularly as they move to 4G. If you kind of discuss the overall pipeline for Wi-Fi for the carriers in the Chinese region?

Selina Lo

Well, I think the spending on Wi-Fi will continue. We just don’t know how much the near-term organizational changes and economics will affect that. In general, right, the big spend, if you are talking about particularly China Mobile. The big spend is with their LTE rollout. And however, every single operator’s those rolling out LTE is also see that Wi-Fi is going to be important not just as a off-low factor but you saw the statistics right. Over 90% of the traffic generated on tablets are on Wi-Fi. And nearly 50% of that traffic on smartphones is on Wi-Fi.

Mark Sue - RBC

Okay. That’s helpful.

And then maybe back into the other region, if you look at the three new Tier-1 operators and should we think about their plans to build out their networks in terms of their pace and in terms of how big and to scope (what that) can be? Should we think about how that’s relates to your prior experience with some of the existing customers so just trying to get a sense of the pace and the scope of your new customers. And how it might relate to what you have already done with your existing customers?

Selina Lo

Well, so far we know the pace of the initial rollout. But, as I said, longer term we have to really work with them to develop that business. So, I can’t comment on the pace long-term.

Seamus Hennessy

Yeah. It varies by customer-to-customer, Mark. But, the key thing we look at is the long-term values of those customers are pretty significant. I mean, what we do know is that rollout occur over an extended period of time.

Mark Sue - RBC

Thanks very much. I’m just wondering, since there is a learning curve already somewhat behind the industry and it’s often something with realization with the technology that it might move a little faster this time around?

Selina Lo

I think the Tier-1, many of the Tier-1 operators actually do know Wi-Fi quite well. Many of them have so to enterprises manage wireless LAN networks before. So I think the challenge is not from that. Depending on the operators application some of the issues can be side acquisition, other issues can be how they look at the metrics of the Wi-Fi business and so on. So, it varies by operator.

Mark Sue - RBC

I see, all right. Well, that’s helpful. And thank you and good luck.

Selina Lo

Thanks.

Seamus Hennessy

Thanks Mark.

Operator

Your next question comes from the line of Ryan Hutchinson with Lazard Capital Markets.

Selina Lo

Hi, Ryan.

Ryan Hutchinson - Lazard Capital Markets

Hi. How are you? Couple of quick follow-ups here. First off, just on the breakout between enterprise and service provider. I understand you don’t break it up but you have said 2/3rds 1/3rd, if I just assume that the majority based on your commentary is coming from service provider, is it fair to assume that that service provider segment was down about 40% sequentially?

Seamus Hennessy

I’m not going to comment on specifics but it was less than what we saw last year.

Ryan Hutchinson - Lazard Capital Markets

Okay. And then on quantifying just the size of the recognized orders in early April, could you just maybe give us a little bit of color around that?

Seamus Hennessy

In regard to the orders that we have seen this quarter, (inaudible) the start of this quarter be significantly stronger than what we saw last quarter. It’s given us better visibility into this quarter but we are still being very conscious given how early we are on the quarter.

Ryan Hutchinson - Lazard Capital Markets

Is it from, could just quantify the number of carriers that you have seen placed orders?

Seamus Hennessy

It’s been a handful. But we are not disclosing the exact number but its got a handful of those customers that have ordered product already this quarter.

Ryan Hutchinson - Lazard Capital Markets

Okay. And are you comfortable that the last orders will be made up throughout the course of this quarter calendar year?

Seamus Hennessy

We are actively working with our service providers to understand the revised the front-end plan but its fair to say that it will happen over the next couple of quarters. In this business, with Wi-Fi, deployments if it moves a quarter everything moves a quarter. It’s not as if, it becomes additive to the next quarter because there is a certain deployment and cadence especially Wi-Fi access points. But, we have not lost any deals and we haven’t seen those projected deals get smaller.

Ryan Hutchinson - Lazard Capital Markets

Understood. Okay. Thank you. That’s helpful.

Operator

I would now like to turn the call over to Selina Lo for closing remarks.

Selina Lo

I want to thank everyone for your interest in Ruckus. And please let me iterate that we iterate that we believe in the company’s fundamentals and our growth drivers. We will continue to drive forward and focus on delivering value for our customers and our shareholders. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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