Ruckus Wireless At Big Dogs Houston

Ruckus Wireless executives preparing to present to the crowd at Big Dogs Houston. Credit: Ruckus Wireless. 

Shares of high-speed wireless networking gear maker Ruckus Wireless (NYSE:RKUS) are down nearly 14% since late Thursday, when the company reported sharp declines in Q3 cash from operations and surprisingly light guidance for the fourth quarter. Here's a closer look at the company's Q3 performance: 

MetricQ3 2015 ActualsQ3 2014 ActualsYOY Growth
Revenue  $98.95 million  $85 million  16.4%
Non-GAAP income from operations  $13.74 million  $13.11 million  4.8%
Adjusted EPS  $0.13  $0.13   0%
Cash from operations   $8.15 million  $15.64 million  (47.9%)

Sources: S&P Capital IQ and Ruckus Wireless press release. 

Commenting on the results, CEO Selina Lo said in a press release:

In the past month, we announced Ruckus Unleashed, our controller-less architecture, providing us with another lever for growth into the SMB segment. And last week, we announced the acquisition of Cloudpath Networks, giving us a certificate-based BYOD and policy solution which we believe is more secure and easier to use than competitive password-based solutions, and which we expect to be an important technology differentiator for Ruckus in education and other verticals going forward.

What went right: Ruckus Wireless's bet on newer-generation Wi-Fi continues to pay off. Access points connecting at the high-speed 802.11ac standard accounted for 74% of sales in the third quarter, up from 71% in Q2. Revenue growth also accelerated for the third consecutive quarter. In a call with analysts, Lo said Ruckus partnered with Juniper Networks (NYSE:JNPR) and Brocade Communications Systems (NASDAQ:BRCD) to win business.

Partnering is key for Ruckus because larger-scale deployments rarely begin and end with selling access points. Routers and switches from the likes of Juniper and Brocade are also part of the mix, especially for accounts where a large campus is to be networked. (Education is one of Ruckus' biggest sectors.) 

What went wrong: Cash from operations declined sharply year over year for reasons that weren't clear from the press release. A follow-up conference call with analysts offered no added insight. Instead, Ruckus put the spotlight on a new lower-end product called Unleashed.

The idea is to get clients up-and-running as fast as possible and then upsell more expensive Ruckus gear as needs change. "We expect this to allow us to reach lower to the SMB [small and medium business market]," S&P Capital IQ quotes Lo saying in Thursday's Q&A session with analysts.  

What's next: Ruckus' engagements with Juniper and Brocade should lead to larger deals at the high end while the sales team seeds the SMB market with Unleashed. Just be sure to also watch gross margin as growth shouldn't come at the expense of pricing power.

Financially, Ruckus Wireless expects between $99 million and $104 million in fourth-quarter revenue, resulting in $0.11 to $0.14 of adjusted earnings per share. That compares with $85.87 million and $0.12 a share respectively, in last year's Q4. Growth isn't coming nearly as fast -- or as consistently -- as investors would like.

Tim Beyers is unwired all the time -- right now, in fact. He's also a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool.

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