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Meru Networks Reports Q2 2014 Financial Results

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SOURCE Meru Networks, Inc.

- Revenues grew 14% sequentially

- 802.11ac sales grew 63% sequentially

- Meru Networks first to receive OPENFLOW SDN certification for wireless networking

SUNNYVALE, Calif., July 28, 2014 /PRNewswire/ -- Meru Networks, Inc., (NASDAQ:MERU), a leader in intelligent Wi-Fi networking, today announced its financial results for the second quarter ended June 30, 2014.

ru Networks logo.

Second Quarter 2014 Financial Results

Total revenues for the second quarter of 2014 were $23.6 million, down 10.9% from $26.5 million in the second quarter of 2013.  Product revenues for the second quarter of 2014 were $18.8 million, down 13.3% from the $21.7 million reported in the second quarter of 2013.  

Net loss as reported in accordance with GAAP was $4.2 million for the second quarter of 2014, or a net loss of ($0.18) per basic and diluted share, compared to a net loss of $3.1 million, or a net loss of ($0.14) per basic and diluted share, for the same period of 2013.

Meru reported a second quarter 2014 non-GAAP net loss of $3.0 million, or ($0.13) loss per basic and diluted share, compared to a non-GAAP net loss of $1.2 million, or ($0.05) loss per basic and diluted share, for the same period of 2013. Non-GAAP results for the second quarter of 2014 exclude the impact of stock-based compensation expense of $1.2 million and amortization of other intangibles totaling $0.1 million. Non-GAAP results for the second quarter of 2013 exclude the impact of stock-based compensation expense of $1.8 million and amortization of other intangibles of $0.1 million. Please refer to the reconciliation of Meru's GAAP to non-GAAP results provided at the end of this release.

"The accelerating 11ac momentum represents a huge opportunity for Meru," said Dr. Bami Bastani, president and CEO, Meru Networks. "In addition, being first to market with OPENFLOW™ certification for wireless networking positions Meru as a leader in SDN-enabled unified wired and wireless networking and expands our addressable market."

Conference Call Information

Meru will host a conference call for analysts and investors to discuss its second quarter 2014 results today, July 28, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To join the live call, individuals may do so by dialing (877) 852-2926 for domestic callers and (253) 237-1123 for international callers. The conference ID for the call is 70474316.

The live and archived webcast of the second quarter 2014 financial results conference call will also be available at the investor relations section of Meru's website at http://investors.merunetworks.com.

About Meru Networks

Meru Networks (NASDAQ: MERU) is a leader in intelligent 802.11ac Wi-Fi solutions, delivering uninterrupted user experience for education, healthcare, hospitality and enterprise. The Meru MobileFLEX architecture is designed to enable seamless roaming with traffic separation for critical applications, providing top performance and high capacity in high-density environments. Visit www.merunetworks.com or call (408) 215-5300 for more information.

© 2014 Meru Networks, Inc. Meru Networks and Meru are registered trademarks of Meru Networks, Inc. in the United States. OPENFLOW™ is a trademark of the Open Networking Foundation.

Cautionary Statement Regarding Forward Looking Statements

All statements other than statements of historical facts are statements that can be deemed forward-looking statements, including any statements of expectations or beliefs. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include, among others: business and economic conditions and growth trends in the networking industry, our vertical markets and various geographic regions; competition in the industry; our future capital needs may change; changes in overall information technology spending; failure to develop new products; and those risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by Meru, including under the caption "Risk Factors" in Meru's Quarterly Report on Form 10-Q filed with the SEC on April 30, 2014, and any subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to Meru as of the date hereof, and Meru assumes no obligation to update these forward-looking statements, except as required by law.

Non-GAAP Financial Measures

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

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

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

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

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

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

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

 

MERU NETWORKS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)










June 30,


December 31,




2014


2013

ASSETS




CURRENT ASSETS:




  Cash and cash equivalents

$   19,413


$           30,938

  Accounts receivable, net

12,649


17,088

  Inventory

6,629


7,230

  Prepaid expenses and other current assets

1,710


998

           Total current assets

40,401


56,254







Property and equipment, net

2,244


2,451

Goodwill

1,658


1,658

Intangible assets, net

35


140

Other assets

1,983


1,934

TOTAL ASSETS

$   46,321


$           62,437







LIABILITIES AND STOCKHOLDERS' EQUITY 









CURRENT LIABILITIES:





Accounts payable

$     4,738


$             6,139


Accrued liabilities

8,559


12,535


Long-term debt, current portion

4,004


3,718


Deferred revenue, current portion

12,090


13,730



Total current liabilities

29,391


36,122







Long-term debt, net of current portion

725


2,797

Deferred revenue, net of current portion

6,574


5,876

Other liabilities

1,658


1,387



Total liabilities

38,348


46,182







STOCKHOLDERS' EQUITY:





Preferred stock

-


-


Common stock

12


11


Additional paid-in capital

286,152


282,168


Accumulated other comprehensive loss

(520)


(553)


Accumulated deficit

(277,671)


(265,371)



Total stockholders' equity

7,973


16,255







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$   46,321


$           62,437







 

MERU NETWORKS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

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










Three months ended


Six months ended


June 30,


June 30,


2014


2013


2014


2013

REVENUES:








  Products

$     18,809


$     21,686


$     34,642


$     42,276

  Support and services

4,762


4,730


9,529


8,833

  Ratable products and services

-


35


-


77

          Total revenues 

23,571


26,451


44,171


51,186









COSTS OF REVENUES:








  Products

6,846


7,367


12,721


14,684

  Support and services

1,955


1,888


3,857


3,664

  Ratable products and services

-


17


-


39

          Total costs of revenues *

8,801


9,272


16,578


18,387









          Gross margin

14,770


17,179


27,593


32,799









OPERATING EXPENSES:








  Research and development *

4,921


3,974


10,373


7,662

  Sales and marketing *

10,778


12,348


22,407


23,768

  General and administrative *

2,859


3,293


6,157


6,578

           Total operating expenses

18,558


19,615


38,937


38,008









Loss from operations

(3,788)


(2,436)


(11,344)


(5,209)









Interest expense, net *

(329)


(553)


(707)


(1,163)

Other income (expense), net

15


11


(1)


(51)

Loss before provision for income taxes

(4,102)


(2,978)


(12,052)


(6,423)









Provision for income taxes

136


89


248


227

Net loss

$     (4,238)


$     (3,067)


$    (12,300)


$     (6,650)









Net loss per share of common stock, basic and diluted

$       (0.18)


$       (0.14)


$       (0.53)


$       (0.32)









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

23,373,165


22,268,180


23,221,958


20,926,926

























*Includes stock-based compensation expense (1)as follows:








       Costs of revenues

$           63


$           54


$         172


$           99

       Research and development

170


212


508


370

       Sales and marketing

345


582


1,156


1,119

       General and administrative

608


906


1,323


1,620


$      1,186


$      1,754


$      3,159


$      3,208









     (1)This table includes $147,000 of stock-based compensation related to restructuring in the quarter ended March 31, 2014. 









*Includes restructuring costs(2)as follows:








       Research and development

$             -


$             -


$           43


$             -

       Sales and marketing

-


-


355


-

       General and administrative

-


-


140


-


$             -


$             -


$         538


$             -









     (2)This table excludes $147,000 of stock-based compensation related to restructuring in the quarter ended March 31, 2014. 









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








       Costs of revenues

$           53


$           53


$         105


$         105

       Sales and marketing 

-


20


-


40


$           53


$           73


$         105


$         145









*Includes amortization of common stock warrant issued in connection with debt financing as follows:








       Interest expense, net

$           25


$           42


$           54


$           87









 

MERU NETWORKS, INC.

GAAP to Non-GAAP Reconciliation

(Unaudited)

(In thousands, except share and per share amounts)












Three months ended


Six months ended



June 30,


June 30,



2014


2013


2014


2013










GAAP net loss

$      (4,238)


$      (3,067)


$    (12,300)


$      (6,650)










Plus:









a) Stock-based compensation

1,186


1,754


3,012


3,208


b) Stock-based compensation associated with restructuring

-


-


147


-


c) Restructuring costs

-


-


538


-


d) Amortization of acquisition-related intangible assets

53


73


105


145


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

25


42


54


87

Non-GAAP net loss

$      (2,974)


$      (1,198)


$      (8,444)


$      (3,210)










GAAP net loss per share of common stock, basic

(0.18)


(0.14)


$        (0.53)


$        (0.32)










Plus:









a) Stock-based compensation

0.05


0.08


0.13


0.15


b) Stock-based compensation associated with restructuring

-


-


0.01


-


c) Restructuring costs

-


-


0.02


-


d) Amortization of acquisition-related intangible assets

-


0.01


0.01


0.01


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

-


-


-


0.01










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

$        (0.13)


$        (0.05)


$        (0.36)


$        (0.15)










Shares used in computing basic and diluted non-GAAP net loss per share of common stock

23,373,165


22,268,180


23,221,958


20,926,926



















GAAP gross margin

$     14,770


$     17,179


$     27,593


$     32,799










Plus:









Stock-based compensation

63


54


172


99


Amortization of acquisition-related intangible assets

53


53


105


105

Non-GAAP gross margin

$     14,886


$     17,286


$     27,870


$     33,003



















GAAP loss from operations

$      (3,788)


$      (2,436)


$    (11,344)


$      (5,209)










Plus:









Stock-based compensation

1,186


1,754


3,012


3,208


Stock-based compensation associated with restructuring

-


-


147


-


Restructuring costs

-


-


538


-


Amortization of acquisition-related intangible assets

53


73


105


145










Non-GAAP loss from operations

$      (2,549)


$         (609)


$      (7,542)


$      (1,856)










 

MERU NETWORKS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)














Six months ended






June 30,






2014


2013

CASH FLOWS FROM OPERATING ACTIVITIES:





Net loss

$(12,300)


$ (6,650)










Adjustments to reconcile net loss to net cash used in operating activities:






Depreciation and amortization

835


762



Stock-based compensation

3,159


3,208



Accrued interest on long-term debt

345


493



Amortization of issuance costs

77


123



Provision for bad debt

96


29



Changes in operating assets and liabilities:







Accounts receivable, net

4,343


909




Inventory

601


2,074




Prepaid expenses and other assets

(756)


(517)




Accounts payable

(1,401)


574




Accrued liabilities and other liabilities

(3,541)


(2,004)




Deferred revenue

(942)


(775)













Net cash used in operating activities

(9,484)


(1,774)









CASH FLOWS FROM INVESTING ACTIVITIES:





Purchases of property and equipment

(476)


(442)













Net cash used in investing activities

(476)


(442)









CASH FLOWS FROM FINANCING ACTIVITIES:





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

-


12,565


Proceeds from exercise of stock options 

319


237


Proceeds from employee stock purchase plan

506


358


Taxes paid related to net share settlement of equity awards

(521)


(86)


Repayment of long-term debt 

(1,862)


(1,652)













Net cash provided by (used in) financing activities

(1,558)


11,422










Effect of exchange rate changes on cash and cash equivalents

(7)


(107)









NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(11,525)


9,099









CASH AND CASH EQUIVALENTS -- Beginning of period

30,938


22,855









CASH AND CASH EQUIVALENTS -- End of period

$ 19,413


$31,954

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

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