Ruckus Wireless' CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.31.13 | About: Ruckus Wireless (RKUS)

Ruckus Wireless Inc. (NYSE:RKUS)

Q2 2013 Earnings Conference Call

July 31, 2013 17:00 pm ET

Executives

Nicole Noutsios - Founder, NMN Advisors

Selina Lo - President, Chief Executive Officer

Seamus Hennessy - Chief Financial Officer

Analysts

Brian Modoff - Deutsche Bank

Simona Jankowski - Goldman Sachs

Rajesh Ghai - Craig-Hallum

Ittai Kidron - Oppenheimer

Rich Valera - Needham & Company

Jason Ader - William Blair

Mark Sue - RBC Capital Markets

Operator

Good afternoon my name is Brandy and I will be your conference operator for today. At this time, I would like to welcome everyone to Ruckus Wireless Q2 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Nicole Noutsios, you may begin your conference.

Nicole Noutsios

Thank you for joining us on today’s conference call to discuss Ruckus Wireless’ Second Quarter 2013 Financial Results. This call is also being broadcast live over the web and can be accessed through the Investor Relations section of our 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 make on the call constitute forward-looking statements. This includes statements related to anticipated marketing conditions, market growth, future financial results, current and new customer demand, customer deployment and order plans, customer requirements and business plans, geopolitical developments, competitive environment, technology and standards developments, acquired technology integration and other future events.

Risks and uncertainties can cause actual results or 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 filings report to the U.S. Securities and Exchange Commission, which is our Annual Report on Form 10-K filed with the SEC on March 5, 2013. And our quarterly report on Form 10-Q filed with the SEC on May 10, 2013. Both of which are available on the IR Section of the company’s website on SEC’s website.

All forward-looking statements made in this call are based on information available to the company as of today. Ruckus does not assume any obligations to update the 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 of a non-GAAP financial measures in this presentation. For a reconciliation of these non-GAAP financial measures to the 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 Selina.

Selina Lo

Thank you. Thank you all for joining us today.

We reported second quarter revenue of $63.9 million, an increase of 31% year-over-year 12% sequentially and at the top-end of our revenue guidance.

In Q2, our service provider business regained momentum. We had a record number of new customer wins and expanded deployments by existing customers. Our enterprise business also continued to perform well. Seamus will provide our full results later in the call.

Q2 was a quarter of recovery and improved visibility for us. We made a lot of progress since Q1. Our Americas service provider business pick-up significantly in Q2, visibility on our China business have improved but revenue from China has not yet caught up to historical levels.

Over the quarter the market for service provider and enterprise Wi-Fi continue to grow driven by increasing adoption of mobile devices particularly tablets. IDC forecast that tablet segment will exceed local PCs this year. But, only 12% of tablets sold have a cellular data sign attached according to the recent NPDs Connected Intelligence Report.

So, Wi-Fi is the predominant method of connectivity for tablets. We believe that tablets are becoming a key driver for high capacity, reliable Wi-Fi in many of our market segment such as education, hospitality and mid-tier enterprise. Wi-Fi access is also becoming a customer service differentiator for public venue. Many service providers are offering managed wireless line service for public venues as a way to capture the tablet population and improve their hotspot footprint.

Another important catalyst for the carrier Wi-Fi market is Hotspot 2.0 also known as Passpoint, a standard that largely simplifies the Wi-Fi user experience. Hotspot 2.0 enables the mobile device to automatically connect to any Wi-Fi access point belonging to the device users, service provider or the providers roaming partners.

Apple recently announced support of Hotspot 2.0 in IOS 7 and a number of Android devices like the Samsung Galaxy already supported. Ruckus has been a strong sponsor of this technology. We have invested in differentiating technologies that are uniquely relevant to public Wi-Fi operators to help them deal with neighbor network interference, network scaling and integration of Wi-Fi into the existing backhand system.

We have a first mover advantage and continue to occupy a leading competitive position in the carrier Wi-Fi market. This was validated by Infonetics' Global Service Provider survey released in May. The survey found Ruckus to be the second most installed Wi-Fi brand today and the number one brand being evaluated by service providers for 2014 deployments.

In Q2, our service provider business pick-up significantly over the prior quarter. We added 15 new service provider customers in the quarter and the number of new MVP customers set a new record. However, while we seen momentum in the quarter, I want to remind you that it can take multiple quarters before service provider design wins become material deployment.

First, we do see this as a sign of accelerated adoption by services providers and an affirmation of our competitive strength in the market. Notable service provider deployments in Q2 include an expansion of O2’s Wi-Fi network with a high capacity indoor and outdoor access point in high traffic locations such as Canary Wharf in London. Telecom New Zealand also deploy Ruckus Smart Wi-Fi access points to transform Phone Booths into super high-speed Wi-Fi Hotspot, although these networks are managed by our SmartCell Gateway.

Our cable MSO customers continue to aggressively rollout Wi-Fi. The cable Wi-Fi alliance between Time Warner Cable, Comcast, Cablevision and Bright House allowed each others high-speed internet customers to access more than 150,000 Wi-Fi Hotspots across the U.S. Wi-Fi is the key strategy for these MSOs to leverage the mobile Internet movement. And cable operators around the world are quickly catching on.

Ruckus had captured 10 cable customers worldwide, four of which were new customers acquired since the end of Q1.

We also continued to see stable growth in our enterprise business. In Q2, we added over 2,900 new end customers bringing our total to more than 27,300 worldwide. We continue to gain customers in the retail, hospitality, transportation and warehouse and logistics verticals as well as sports and entertainment venues.

For example, we won more than two dozen high-density public venues in Q2 including the 28000 seat Rio Tinto Stadium in Salt Lake City, the Chennai Stadium about 50,000-seat sports venue in India and 11 hockey arenas across Sweden. We also won an international warehouse and logistic provider in port operator with 70 locations in 28 countries.

On the product front, our SmartCell Gateway continues to resonate with service providers and it is gaining momentum in the market. We more than doubled our Q2 shipments over Q1 and as I mentioned earlier both O2 and Telecom New Zealand deployed SCGs in their live networks.

Earlier this month we announced our acquisition of Wi-Fi, a pioneer in indoor positioning and real-time location analytics technology. The Wi-Fi team has developed capabilities that we intend to integrate with our Smart Wi-Fi to create a new class of location intelligence high performance wireless infrastructure. A growing number of our enterprise and carrier customers are interested in developing new value added services on top of their Ruckus network, such as leveraging indoor location information of mobile devices to deliver analytics, mapping and eCommerce services. The YFind acquisition will accelerate our time to market for this type of capability.

Before I turn the call over to Seamus to discuss our financial results, I’m pleased to announce that Greg Beach has joined my team as our VP of Product Management. Greg is the veteran of the wireless LAN business. He came to Ruckus from Cisco, where he headed up product management for their wireless business unit.

Now Seamus.

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 employers tax in connection with stock compensation 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 Q2, 2013 total revenue came in at $63.9 million, an increase of 30.6% year-over-year and 11.6% sequentially, which was at the top end of our revenue guidance of $61 million to $64 million. Product revenue was $59.7 million up 29.3% year-over-year and 11.9% sequentially. Service revenue was $4.2 million up 53.6% year-over-year and 7.1% sequentially. In Q2, Americas revenue grew 38% year-over-year and 33% sequentially and represented 53.1% of total revenue primarily driven by seasonal strength enterprise and improved service provider momentum in Latin America.

Our Q2 revenue grew 62.1% year-over-year and 6.3% sequentially and represented 26% of total revenue for Q2. Asia Pacific including Japan increased 5.1% year-over-year and 17.5% sequentially and represented 20.9% of total revenue for Q2.

The year-over-year and sequential decrease was primarily the result of anticipated low revenue in Japan attributable to one large customer. Asia Pacific excluding Japan was in line with our expectations and normal seasonality in the region. We are starting to see improved visibility in China but are not back to historical revenue levels. Two of our North American distributors accounted in total for more than 29.9% in revenue in Q2 and one accounting for 17.1% and the other accounting for 12.8%.

We continue to execute on our diversification strategy and had no end customer that accounted for 10% or more of revenue in the quarter which is consistent with the past three quarters.

Gross margin in Q2 was 67.4% up 204 basis points year-over-year and down 53 basis points sequentially. Product gross margin was 68.9% up 345 basis points year-over-year and down 68 basis points sequentially.

Product margins can fluctuate quarter-to-quarter and are offset by product mix, regional revenue mix as well as large orders from customers. Our service margin was 42.6% down 1773 basis points year-over-year and up 52 basis points sequentially.

The level of our service organization investment was relatively unchanged from Q1 to Q2, as the curtain prior quarter’s the service gross margin change was driven by headcount and infrastructure investments in the services organization to support expected customer growth and service margin will fluctuate depending on the timing of these investments.

Q2 operating expenses were $36.9 million up 57.8% of revenue. As a percentage of revenue, operating expenses were up 528 basis points year-over-year and down 285 basis points sequentially primarily resulting from higher revenue in the quarter. Our operating profit in Q2 was $6.1 million or 9.6% of revenue a decrease of 325 basis points year-over-year and up 231 basis points sequentially.

Our non-GAAP tax rate was 22.9% in Q2 and reflected full year forecast of tax rate of 30.5%. Non-GAAP net income for the quarter was $4.7 million or $0.05 per diluted share compared to $23.2 million or $0.30 per diluted share in Q2 2012. We had 92.6 million weighted average shares outstanding on a diluted basis in Q2, on a non-GAAP basis net income for the quarter was $0.7 million or $0.01 per diluted share or net income attributable to common stockholders compared to Q2 2012 net income of $20.6 million or $0.17 per diluted share based on net income attributable to common stockholders.

As a reminder, both GAAP and non-GAAP net income in the second quarter of 2012 included $70.5 million of income related to the release of the valuation allowance on the net deferred tax assets.

Total headcount at the end of Q2 was 769, an increase of 49 from Q1. We have stated previously given our leading position in the market, our plan is to continue to invest our future growth. As such we continue to strategically invest in customer service, research and development and the expansion of our global sales presence. As announced earlier this month, we have acquired YFind, a pioneer in indoor positioning and real-time location analytics. All the employees of YFind became employees of Ruckus.

Over the coming months, we’ll be investing an additional headcount to build out that team. I will discuss the potential financial impact of these investments when I discuss guidance.

Turning to the balance sheet, we finished Q2 with cash and cash equivalence, short-term investments and restricted cash totaling $129.8 million, an increase of $1.7 million of the prior quarter and a decrease of $3.6 million over December 31, 2012. Cash provided by operations in Q2 was $1.4 million. We ended Q2 with $14.9 million of accounts payable sequentially increase of $1.7 million and accrued compensation of $10.9 million, a sequential increase of $3.3 million and with $52.6 million of accounts receivable, a sequential increase of $10.3 million.

The average days sale outstanding was 75, up from 67 in the prior quarter reflecting more of a backend loaded invoicing quarter. We expected within a historical range in the coming quarters. Ruckus’ inventory totaled $19.8 million at the end of Q2, an increase of $0.9 million from the end of Q1.

Let me turn to our third quarter 2013 guidance. We expect third quarter revenue to be in the range of $66 million and $69 million. We expect non-GAAP earnings to be approximately $0.04 per share using 93 million to 94 million shares on a diluted basis. We expect gross margins to be within the range of our prior historical trends, our guidance reflects the cost associated with the recent YFind acquisition and related headcount investments we are making in order to drive a long-term revenue growth.

We expect these costs will impact the bottom line by approximately $0.05 in Q3 and approximately $0.01 in Q4 which is reflected in our guidance. And we expect no incremental revenue in 2013 resulting from this acquisition. We expect our non-GAAP tax rate to be approximately 30.5% in Q3.

Now, we’ll 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 Brian Modoff with Deutsche Bank.

Brian Modoff - Deutsche Bank

Guys, a couple of questions. Selina, can you talk a little bit more about the Wi-Fi -- or excuse me, the cable operator side of your business? Kind of the activity you're seeing there with the MSOs or have seen recently some activity in terms of contract awards for building Wi-Fi across some of the major parks in New York City? Can you talk a little bit about your opportunities there? And then your Controller, kind of give us an idea of how that revenue ramp is going and how that's affecting your margins. Thanks.

Selina Lo

Okay. Let me talk about the first -- the U.S. MSOs as you know Time Warner Cable and Bright House are both our customers and Time Warner Cable, I believe in Q2 talked about their increased deployment in New York City and we are very excited about that. Bright House also is actively deploying and what we are seeing beyond the U.S. is that cable operators around the world including Europe and Latin America are all procuring Wi-Fi equipment and deploying Wi-Fi networks.

As I mentioned in the script, we won four cable operators since the end of Q1 and we are seeing that accelerating. And we have discussed this for long time, the cable operators look at Wi-Fi as the ability for them to participate in the mobile Internet phenomenon. And they are – they also see the growth of tablets and the number of tablets that wouldn’t be addressed by your typical cellular data. So they are very aggressive and I think that the U.S. operators the cable Wi-Fi alliance is absolutely right on target in terms of their strategy by combining footprint. I think the cable subscribers, when they have 150,000 Hotspots that they can use as part of their service that is pretty powerful.

Seamus Hennessy

And let me address the -- I think you are probably referring to the SCG revenue. We are actually very encouraged by the momentum that we are actually seeing with the SCG. We are breaking our percentages but we are encouraged by the adoption of the SCG and that our customers that are actually actively looking at the SCG for future deployments.

Brian Modoff - Deutsche Bank

Okay. Couple of more questions, then. The Qualcomm announcement with Alcatel Lucent on the femto side. Any view on that and them as a customer? And then Seamus, on the DSOs, they have climbed a bit here over the last few quarters. How do you see that sequentially? You've talked a little bit on your prepared remarks around kind of backend loaded billings quarter. But can you talk a little bit about what you see that trend-line doing that has, over the last four quarters, moved up a bit? Thanks.

Selina Lo

So let me address your first question on Qualcomm and ALU and then Seamus can address the second part. We actually have been debriefed by Qualcomm on their announcement, so there was no surprise there. Actually both Qualcomm and ALU have been a long time partners of ours. We have been using Atheros chipsets since day one and as Qualcomm Atheros expand into beyond Wi-Fi to SmallCell development. We have been following them very closely.

ALU also is a customer of ours, we are in many, many accounts together with ALU core and Ruckus Wi-Fi as well as ALU Cellular.

So, this is a great thing for us, it opens up more opportunities for Ruckus. We are working with a number of partners in integrating our Wi-Fi technology into their smartphone.

Seamus Hennessy

And let me address the DSO, it has climbed over the last number of quarters and I think last quarter was more reflection on invoicing but more our bookings were in line with our internal target. We expect over the coming quarters that will start to revert back to our historical trends and we have given a range of 50 to 55, my expectation will be the 50 to 60 range in the coming quarters and start to revert back.

Brian Modoff - Deutsche Bank

Okay, excellent. Good luck guys. Thanks.

Selina Lo

Thank you.

Seamus Hennessy

Thanks.

Operator

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

Simona Jankowski - Goldman Sachs

Hi, thanks very much. Seamus, I just wanted to ask another quick follow-up on the DSO question. Was most of the invoice increase on the service provider or the enterprise side of the business?

Seamus Hennessy

We are not specifically breaking out that Simona.

Simona Jankowski - Goldman Sachs

Yes. I mean, I'm just trying to understand the magnitude because my understanding was that the enterprise side of the business, since it mostly goes through the channel, it tends to be kind of pretty linear through the quarter. So I'd assume that this is mostly on the service provider side, but then it seems quite large in magnitude since it's about half of your service provider run rates. So can you just give us a little more insight into that thinking?

Seamus Hennessy

Yes. I think in regards to our invoicing, a lot of our large distributor stock product during the quarter to Simona. So receivables were tied to actually when product is shipped and invoiced out. Our bookings were generally on with our expectations and we all to commence the quarter with the distributor product on the shelf of approximately $20 million. So, we are not specifically breaking out the difference between service provider and enterprise but are receivables are in line – the DSOs have to be tough. But its not tied to anyone specifically or any one specific customer.

Simona Jankowski - Goldman Sachs

Okay. And what was the split of service provider to enterprise revenues in the quarter?

Seamus Hennessy

And as we previously said, we will actually update that on an annual basis. So we are not breaking that out in a quarterly basis, we will update that at the end of the year.

Simona Jankowski - Goldman Sachs

Sure. And then a follow-up on China. Can you give a little more color on what's happening there? If you can just maybe go into how much of the shortfall last quarter, which we're seeing still into this quarter, is related to timing versus any competitive issues. And also if you can break it down further between their managed services opportunities with the three operators versus the broader enterprise, just to try to give us a sense for specifically what you think the weakness is and how we might think about it coming back.

Selina Lo

So, you in Q2 we did sell to the Chinese operators there was business from the Chinese operators. We have better visibility, however, because the LTE is now a big push in China and it does take away near-term mind share. We are very cautious about the service provider business in China.

In terms of the enterprise business, the enterprise business is much more predictable than the service provider business in China. However, overall, we feel that the market still feels a little bit soft. So we are taking a very cautious view of China.

Simona Jankowski - Goldman Sachs

And Selina, my understanding was that your service provider business in China is mostly on the managed services side as opposed to the mobile offload side, which I would have thought should be less impacted by their TD LTE planning process. How should we think about that?

Selina Lo

Actually, I think your assumption is a little off. We do work with operators in China, managed services but also a big part of what we do with China operators are the – what they call wireless cities. We are – I believe in someway around 10 provinces in terms of wireless city support. And so that business right now because of LTE, I do think that this going to impact from because of just mind share.

Simona Jankowski - Goldman Sachs

I see. Okay. Thanks very much appreciate it.

Selina Lo

Okay

Operator

Your next question comes from the line of Rajesh Ghai with Craig-Hallum.

Rajesh Ghai - Craig-Hallum

Thanks. Congratulations on getting back on track. The question that I get is -- or quite often is about the gross margins on the service provider side. As that part of the business ramps up, the concern that I hear from investors is how our gross margin's going to hold up for you? And was there any impact of the improvement in the -- of the shift in the mix toward the service provider that kind of probably led to a slight decline in the product gross margin this quarter?

Seamus Hennessy

Let me actually address the second question and slide decline and I think if you go back to Q1, we actually had a 150 basis point pick-up in Q1 over Q4 related to recognition of approximately $2.5 million in deferred revenue with no related cost of sales. I think the trend now – if you look at the trend over the last probably 7 to 8 quarters that we reported.

Our gross margins have continued to be strong and healthy even the service provider business has grown. So, we haven’t seen an overall impact on service providers having any material impact and I think demonstrated so we continue to have followed execution on both the enterprise and service provider when it comes to our overall gross margin.

Rajesh Ghai - Craig-Hallum

Okay, great. And as it relates to the SmartCell Gateway, I think a lot of investors are asking us is how does that differentiate Ruckus compared to competition? Can you just provide some color on that as to how that is a huge differentiator versus Cisco and BelAir?

Selina Lo

Yes, so I can shed some light on that. In terms of Ericsson, we don’t see them – we actually as I have always said we saw them less and less in pure Wi-Fi deals. In terms of their announcement of high capacity controller, I think that what they are referring to is their gateway. I don’t believe that they have an integrated controller and gateway that high capacity. So, I have never seen it, if it exists.

In terms of Cisco, they do have high capacity controller the 8500, I believe it supports 6000 APs. The big difference between that and our SCG is – a system that we architected from scratch. The SCG was architected to cluster to provide linear scalability. What that means is that you can manage multiple SCG at the single system. And all the low sharing and redundancy is done naturally as part of the SCG system whereas the Cisco system -- the Cisco controller is just a big controller, anybody can put more CPU and memory into a box to add support of APs.

So, we don’t go head to head with Cisco based on the controller. I found that customer select Ruckus because of an integrated set of reasons. The RS definitely is a major differentiator, the SCG, how scalable it is, is a big differentiator as well as the gateway functions that allows them to integrate Wi-Fi to their back end system that is something that neither Ericsson or Cisco has in a single integrated system.

Rajesh Ghai - Craig-Hallum

That's very helpful. And my last question is around the cable Wi-Fi opportunity. Obviously, in the US you are seeing some announcements from cable operators. Selina, you mentioned operators across the globe -- I was looking at Wi-Fi cable operators across the globe. When do you think those announcements or those requirements would start? Is that going to be a 2014 activity, or are you going to see some of those deployments happening in 2013 itself? Thank you.

Selina Lo

Some of the deployments have already started, we are talking about cable operators outside the U.S. Some deployments have already started. We will announce them as the customer gets ready. We are very bullish on cable operators on the Wi-Fi deployments. We think that the strategy – the Wi-Fi strategy is really very important to them. And also I think, we feel that that is the space because of the integration of process and also very special features that are required by the cable operators.

I believe that right now it is a Cisco and Ruckus play, I do think that BelAir has some systems that they developed before the Ericsson acquisition. But, I do think that in this space long-term, right now the competitive dynamics is Cisco and Ruckus.

Rajesh Ghai - Craig-Hallum

Okay. Thanks.

Seamus Hennessy

Thanks Rajesh.

Operator

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

Ittai Kidron - Oppenheimer

Hi, guys. And congrats on a good quarter. Seamus I wanted to ask on the OpEx, is the bulk of the increase the acquisitions that you made is that about a $1 million a quarter an OpEx, is that a right way to think about it?

Seamus Hennessy

Now, we are not breaking up specifically. But, I think you came back into the number from the $0.05 impact in Q3 and the $0.01 impact in Q4 and the cost is really tied to the additional – we hired all the employees from Wi-Fi both additional investments we are putting in to actually building out that team.

Ittai Kidron - Oppenheimer

Okay. Can you talk about the revenue opportunity there from a timing magnitude, how does it fit with your portfolio? A little bit more of a bigger picture kind of a discussion.

Seamus Hennessy

I will handle the first question and then I will let Selina talk about the strategic fit of it. From a revenue impact right now what we have really acquired was the technology and talent and you don’t expect any revenue from the YFind acquisition in 2013. We will update that as we go forward on our future guidance but after 2013 there is no financial impact. But, I think I will let Selina really talk about the strategic importance of YFind to and Ruckus as an entity.

Selina Lo

Yes. So ABI Research released a report they did an estimate and forecast of the indoor location market. And they forecast that by 2017, this is a $5 billion market and in that $5 billion, he included the network -- the Wi-Fi network and potentially Bluetooth networks. As well as apps that installed to facilitate on location services.

So, from that point of view if you believe it, it is a huge market and I do think that it’s a huge market obviously I’m believer. I think in terms of the strategic importance to Ruckus something that is a very synergetic is that those are enterprise customers and our service provider customers’ one location bay services. The enterprise customer really want to adapt that kind of services for different reasons depending on the vertical but service providers, they see that as a way to monetize their Wi-Fi investments because they see the location services as a capability that they can build a tower to offer their business customers, different types of services.

Ittai Kidron - Oppenheimer

Okay, very good.

Selina Lo

So for us, you know, this is a quite a strategic investment.

Ittai Kidron - Oppenheimer

Okay, very good. A couple of follow ups, Seamus first just on the tax rate, you mentioned 30.5% but you didn’t get it doubled for September or for the year overall as an average?

Seamus Hennessy

Yes, I think for the full year, we expect the 30.5% and so you can use the 30.5% as a good rate for Q3 and Q4.

Ittai Kidron - Oppenheimer

Okay. And Selina, can you talk about competitive landscape specifically on the enterprise side, you have seen any change there or from a pricing standpoint any change in behavior or and are you seeing a Aruba’s instant product a little bit more out there, yes or no?

Selina Lo

So, yes, first of all, the overall competitive landscape hasn’t changed. Our enterprise business last quarter was very predictable, it came in exactly as we forecast. And it will -- it clearly grew from Q1. The overall I think there is more noise out there, there are more players in the picture with Cisco bringing Meraki in. However, I think that one of the things that Ruckus has been very good at, as we are very vertical focused and very channel focused.

And because of that strength, we have developed our enterprise channels for five years now. And so some of these channels have multiyear relationship with us and we see them at our conference -- partner conference once a year, I personally. So, I think that has been -- we have been able to win a lot of fields.

And on top of that, we continue to provide technology that are critical to our customers. For example, no matter how many competitors that are out there, you go to a hotel and you ask them what they are looking for in Wi-Fi, they would tell you they want a system that does not break. They want no helpdesk calls. And Ruckus has our unique radio capability, it’s what constantly differentiates us none of the competitors either established competitors like Cisco and Aruba or new entrance, none of them have that kind of radio differentiation. And so, we have seen the competitive landscape very stable, it constantly crowded in the enterprise space.

Ittai Kidron - Oppenheimer

Very good. All right, good luck guys.

Seamus Hennessy

Thank you, Ittai.

Selina Lo

Thank you.

Operator

Your next question comes from the line of Rich Valera with Needham & Company.

Rich Valera - Needham & Company

Thank you, good afternoon. I had a couple of questions on the service provider’s space. First, with respect to the resumption of momentum there, can you say how much of that was from the customers that were pushed out last quarter coming back versus sort of new customers coming on and then I think you mentioned, you added 50 new service provider customers and I think it’s a record? So, wondering if that sort of process from engagement to close and service provider is getting more streamline and you’re being able to kind of close those yields in a shorter timeframe than the historical timeframe was? Thanks.

Seamus Hennessy

Yes, I will actually address that question Rich. So, from a service provider perspective, Q2 -- the momentum that we have in the service providers was generally in line with our expectations and the forecast that we provided and the guidance we have started -- the guidance we provided in Q2. And as we said before, sorry, in Q1 but what we said last quarter is service provider deployment has never becomes an additive from Q1 to Q2 when the projects moved out of Q1, all the projects moved. So, Q2 was in line with our internal expectations.

Selina Lo

But we did other Q1 projects that we -- that did not come in Q1. We did close all of them except one and that one is still currently just delayed.

Seamus Hennessy

We did not lose that opportunity its more of a delayed project.

Rich Valera - Needham & Company

Great. What about that the timing, is it getting, I don't want to see easier but it’s a getting maybe quicker to close service provider deal, is that timeframe of valuation shrinking broadly speaking or not so much?

Selina Lo

Yes. To a certain extent because now we have a lot more references. And also we are winning more deals where we win at the group level. So the individual operating companies, a lot of time just follow what the group has done and they leverage from that. So, in that sense, it does make things easier.

Rich Valera - Needham & Company

Got you. And just one more quick one on the service provider side, have you done anything to your forecasting process to try to avoid future Q1 type situation and make that apparently a lumpy business smoother?

Seamus Hennessy

No, I think if we go back to Q2, the methodology and the additional deep dive that we put into giving to guidance. We continue to reinforce that but we haven’t done anything that different. And we continue to execute on our forecast in this quarter as a reflection of us coming at the top end of our guidance.

Selina Lo

But, I think also on a continual basis, every quarter, we add more customers. So, as I’d explained to some of our friends out there, to get the business to be stable, one of the things that we want to do is to have a very broad set of service provider customers so that we can smooth out the lumpiness.

So, our 15 -- gain of 15 new service providers is getting us to come up to almost a total of nearly -- looking at 100 installed base, 90, Seamus, it’s now only 90, installed base service provider customers. And so, and as we said last quarter, we also saw a record of new and repeat customers on the service provider front. So, I think that from a pipeline perspective like Seamus said, we have always been very, very careful about forecasting service provider business and there are always chances for surprise. However, the fact that we now have a strong base I think over time will protect us from that.

Seamus Hennessy

And what we really focus on is known service provider deployment in a quarter and that’s typically the basis that we forecast but there are -- our methodology has been rigorous and continue to be rigorous but looking at those that are in deployment and expect to be in deployment and our enterprise business is a very stable, predictable business.

Rich Valera - Needham & Company

Understood, thanks for that color, appreciate it.

Selina Lo

Thanks.

Operator

Your next question comes from the line of Jason Ader with William Blair.

Jason Ader - William Blair

Yes, thank you. Can you hear me, okay guys?

Selina Lo

Yes, thanks.

Seamus Hennessy

We can Jason.

Jason Ader - William Blair

All right, thank you, sorry I’m just on a train platform. I wanted to ask you about ac and the timing of when you think it will be material to your business first. And then secondly, Selina, can you talk about your technical differentiation in a world of AC, wherein AC the key attribute of AC is going to be the informing?

Selina Lo

So AC I think in general, the AC wave is not going to be material this year. However, it is definitely a marketing checkbox. On the AC technology, the people who have looked into it are all aware that they are actually two phases. The first phase is basically stage I is big pipe, its application of multiple channel into a big pipe. And then the second phase is what they call multi-user MMO where you can truly let a lot of user share to that pipe. And the big difference in this compared to 11 end is that it requires hardware change to go from phase I to phase II. They are not compatible hardware -- in terms of silicon.

So, a lot of people who are looking at implementing AC wholesale, they are waiting for ways to -- they are waiting for phase II of AC. There are customers who are looking to put in some this year just to see how it behaves. But I don't think that this is -- as a market, I don't think that is going to become significant until next year and even next year, it’s going to take probably I think way to for 11 AC is currently, we are looking at 2015 or end of 2014 and so I think the evolution is going to take a little bit of time.

Seamus Hennessy

And I think one other color, I think the jump from end to AC is not going to be a significant as we saw with G to end.

Jason Ader - William Blair

On the (inaudible), Selina?

Selina Lo

Oh, yes, with AC absolutely, AC so the first, the current phase I of AC is the ability to aggregate multiple channels to get to gigabyte types right. Now, so this depends on the access pointing able to see that many usable channels. And the Ruckus, the BeamFlex technology is what we have to allow the network to find the cleanest and the highest performing channels to enable that big pipe. So, absolutely our BeamFlex technology is absolutely relevant and in fact when we talk about wave to multi-user MMO BeamFlex would even to be more meaningful.

Jason Ader - William Blair

Okay. Thank you.

Selina Lo

Okay.

Operator

Your final question comes from the line Mark Sue with RBC Capital Markets.

Selina Lo

Hi, Mark.

Mark Sue - RBC Capital Markets

Just on, hi how are you? Just on cable, the activity seems to be quickening with some of the MSOs, so I’m just wondering but we also adding some competitive displacement perhaps from Ericsson or others that really invested in the segment as much or is it really Ruckus contributions from non U.S. cable MSOs and as you ask that Selina, maybe where the non-U.S. cable MSOs are in the stage of development, that will be helpful?

Selina Lo

So first about whether its displacement, it is definitely a mix of new greenfield and displacement of our competitor’s products. In terms of the pace of implementation, I think that’s the second part of your question. Outside North America, we actually see very aggressive deployments of the operators outside North America because they all come to North America to actually visit some of the cable operators that have already deployed a significant amount. So, I think the international cable operators are feeling more confident than initially the North America operators would.

Mark Sue - RBC Capital Markets

I see, that’s helpful. And then separately, when we look at your enterprise customers, any segmentation there in terms of relative strength, is that the smaller, medium businesses, is it the large enterprises, is a certain verticals or certain regions around the world just on the enterprise side?

Selina Lo

We have always been very, performing very solid on the enterprise side in the hospitality and education segment. So, those two have been a very strong segments for us. But recently because of this public Wi-Fi requirement, we are seeing more and more retail quick service restaurants, transportation hub and those guys are picking up very quickly but still hospitality and education are two major segments for us.

Mark Sue - RBC Capital Markets

All right. That’s helpful. And thank you and good luck.

Seamus Hennessy

Thanks Mark.

Selina Lo

Thanks.

Operator

There are no further questions at this time. Selina Lo back to you.

Selina Lo

Okay, thank you. I want to thank everybody for your interest in Ruckus. We feel confident about our position in the market and our execution. The company made progress in the second quarter delivering strong growth in our enterprise segment and regaining momentum in our service provider segment. We look forward to seeing you next quarter.

Operator

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

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