May 17, 2012 at 16:10 PM EDT
Aruba Networks Reports Record Fiscal Third Quarter 2012 Financial Results

Aruba Networks, Inc. (NASDAQ: ARUN) today released financial results for its fiscal third quarter ended April 30, 2012.

Revenue for Q3’12 was $131.9 million, an increase of 25 percent from the $105.8 million reported in Q3’11. GAAP net income for Q3’12 was $6.0 million, or $0.05 per share, compared with GAAP net income of $3.2 million, or $0.03 per share, for the same period in the previous year.

Non-GAAP net income for Q3’12 was $19.4 million, or $0.16 per share, compared with non-GAAP net income of $18.8 million, or $0.16 per share, in Q3'11. A reconciliation between GAAP and non-GAAP information is contained in the tables below.

“We are pleased with our solid third quarter results as we grew revenue 25 percent year-over-year to the highest level in our history,” said Dominic Orr, president and chief executive officer. “Our differentiated mobile-centric approach to the access network continues to resonate with both new and existing customers as the global proliferation of mobile devices and the BYOD trend fundamentally change how users securely connect to their enterprise resources. The recent customer wins we made this quarter with our MOVE architecture demonstrate the power of our platform to expand within our current customer base and win new accounts.”

“Gross margins were above our guidance range and we continued to show leverage in our operating expenses,” said Michael Galvin, Aruba’s chief financial officer. “Total cash and short-term investments increased more than $40 million, including record cash flow from operations of $28 million.”

Recent Highlights

  • Introduces Aruba ClearPass. Creates first Bring Your Own Device (BYOD) solution to securely provision and onboard iOS, Android, Mac OSX and Windows 7 Mobile devices on any network. The Aruba ClearPass solution is designed to simplify and automate the secure provisioning of mobile devices on any enterprise network and to enable IT organizations to both drive down mobility services management costs and rapidly scale to address the BYOD phenomenon.
  • Copenhagen, Denmark Deploys Wireless Network Based on Mobile Virtual Enterprise (MOVE). The Government of the City of Copenhagen in Denmark has deployed a wireless network based on Aruba’s MOVE architecture in order to deliver wireless and remote connectivity to employees. The city found that choosing Aruba would lead to overall lower operational and on-going costs, while delivering an infrastructure that can be deployed anywhere, is easy to manage, and very reliable regardless of the location.
  • Brandeis University Replaces Cisco and Juniper Access Switches with Aruba Networks. The university made a campus-wide decision to replace Juniper and Cisco access switches with Aruba S3500 Mobility Switches after rigorous head-to-head testing and production network use of each.
  • Public School System Implements MOVE. The Howard County Public School System of Maryland will be deploying Aruba’s multimedia-grade access network solutions with a system-wide 802.11n wireless network based on Aruba’s MOVE architecture using S3500 Mobility Switches.
  • MOVE on Norway’s Hurtigruten Cruise and Shipping Lines. Deployed a new mobile network based on Aruba’s MOVE architecture in order to deliver Wi-Fi and guest access services to employees and passengers.A typical installation on a Hurtigruten ship is comprised of Aruba’s Mobility controller and 802.11n wireless access points where passengers can self-register for guest access using Aruba’s ClearPass Guest visitor management solution, also installed on each ship.
  • MOVE in Health Care. Beaumont Health System is now able to see more patients in a day with their workflow greatly simplified and the unit more productive using Aruba’s mobile access network based on Aruba’s MOVE architecture. It will be used for communications and data transmission with its mobile Magnetic Resonance Imaging (MRI) and Positron Emission Tomography (PET) unit that is enclosed in a large, specially designed trailer, that serves Beaumont’s community based medical centers. The Aruba wireless access network is used to deliver all of the images, which can number up to 300 per patient, from the unit to the hospital’s picture archiving and communication system (PACS) and also carries IP voice traffic.

Conference Call Information

Aruba will host a conference call for analysts and investors to discuss its fiscal third quarter results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Open to the public, investors may access the call by dialing +1-480-629-9760. A live webcast of the conference call will also be accessible from the “Investor Relations” section of the company’s website at www.arubanetworks.com. Following the webcast, an archived version will be available on the website for twelve months. To hear the replay, parties in the United States and Canada should call 1-800-406-7325 and enter passcode 4537751. International parties can access the replay at +1-303-590-3030 and should enter passcode 4537751.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about our expectation that employees will continue to bring their own devices to work, resulting in increased demand for our enterprise mobility solutions, and expansion of our product portfolio.

These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause Aruba’s results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include: (1) business and economic conditions and growth trends in the networking industry, our vertical markets and various geographic regions; and (2) changes in overall information technology spending; as well as those risks and uncertainties included under the captions “Risk Factors" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Aruba’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2012, which was filed with the SEC on March 8, 2012, and is available on Aruba’s investor relations Web site at www.arubanetworks.com and on the SEC Web site at www.sec.gov. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain the following non-GAAP financial measures: non-GAAP net income and non-GAAP earnings per share (EPS). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Non-GAAP net income and EPS. Aruba defines non-GAAP net income as net income plus stock-based expenses and related payroll taxes, amortization of acquired intangible assets and other acquisition related expenses, and the change in the valuation of the contingent rights liability, less the related tax effects. Aruba defines non-GAAP EPS as non-GAAP net income divided by the weighted average diluted shares outstanding. Aruba’s management regularly uses these non-GAAP financial measures to understand and manage its business and believes that these non-GAAP financial measures provide meaningful supplemental information regarding the company’s performance by excluding certain expenses that may not be indicative of Aruba’s “recurring operating results,” meaning its operating performance excluding not only stock-based expenses and related payroll taxes, but also discrete charges that are infrequent in nature. Further, Aruba’s management excludes from non-GAAP net income the tax effects of these non-GAAP financial measures, as without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on the Company’s operating results. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use, Aruba’s management believes that providing non-GAAP financial measures that exclude stock-based expenses allows investors to compare these results with those of other companies, as well as providing management with an important tool for financial and operational decision making and for evaluating the company’s operating results over different periods of time. Similarly, by excluding amortization expense of acquired intangible assets and other acquisition related expenses, and the change in the valuation of the contingent rights liability, less the related tax effects, Aruba’s management believes that investors can better understand and measure the company’s recurring operating results.

There are a number of limitations related to the use of non-GAAP net income and EPS versus net income and EPS calculated in accordance with GAAP. First, these non-GAAP financial measures exclude some costs, namely stock-based expenses and related payroll taxes, that are recurring. Stock-based expenses and related payroll taxes have been and will continue to be for the foreseeable future a significant recurring expense in Aruba’s business. Second, stock-based awards are an important part of Aruba’s employees’ compensation and impacts their performance. Third, the components of the costs that Aruba excludes in its calculation of non-GAAP net income may differ from the components that its peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluates these non-GAAP financial measures together with their most directly comparable financial measures calculated in accordance with GAAP. The accompanying tables provide reconciliations between these financial measures and their most directly comparable GAAP equivalents.

A copy of this press release can be found on the investor relations page of Aruba Networks’ Web site at www.arubanetworks.com.

About Aruba Networks, Inc.

Aruba Networks is a leading provider of next-generation network access solutions for the mobile enterprise. The company’s Mobile Virtual Enterprise (MOVE) architecture unifies wired and wireless network infrastructures into one seamless access solution for corporate headquarters, mobile business professionals, remote workers and guests. This unified approach to access networks dramatically improves productivity and lowers capital and operational costs.

Listed on the NASDAQ and Russell 2000® Index, Aruba is based in Sunnyvale, California, and has operations throughout the Americas, Europe, Middle East, and Asia Pacific regions. To learn more, visit Aruba at http://www.arubanetworks.com. For real-time news updates follow Aruba on Twitter and Facebook.

© 2012 Aruba Networks, Inc. Aruba Networks’ trademarks include the design mark for AirWave, Aruba Networks®, Aruba Wireless Networks®, the registered Aruba the Mobile Edge Company logo, the registered AirWave logo, Aruba Mobility Management System®, Mobile Edge Architecture®, People Move. Networks Must Follow®, RFProtect®, Green Island®. All rights reserved. All other trademarks are the property of their respective owners.

Aruba Networks, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
April 30,July 31,
20122011
Assets
Current assets:
Cash and cash equivalents $ 120,054 $ 80,773
Short-term investments 196,454 153,185
Accounts receivable, net 83,558 68,598
Inventory 20,546 29,895
Deferred costs 8,696 6,999
Prepaids and other 15,616 5,097
Deferred income tax assets 31,120 53,310
Total current assets 476,044 397,857
Property and equipment, net 17,701 14,772
Goodwill 56,747 33,143
Intangible assets, net 27,663 20,863
Deferred income tax assets, non-current 21,929 20,143
Other assets 14,270 2,093
Total non-current assets 138,310 91,014
Total assets $ 614,354 $ 488,871
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,425 $ 11,278
Accrued liabilities 54,233 61,461
Income taxes payable 1,221 767
Deferred income tax liability 76 -
Deferred revenue 70,978 54,451
Total current liabilities 130,933 127,957
Deferred income tax liability, non-current 3,305 815
Deferred revenue, non-current 20,360 14,000
Other liabilities 950 757
Total non-current liabilities 24,615 15,572
Total liabilities 155,548 143,529
Stockholders' equity

Common Stock: $0.0001 par value; 350,000 shares authorized at April 30, 2012 and July 31, 2011;
111,814 and 104,905 shares issued and outstanding at April 30, 2012 and July 31, 2011, respectively

11 10
Additional paid-in capital 570,959 450,147
Accumulated other comprehensive income (loss) (1,401 ) 127
Accumulated deficit (110,763 ) (104,942 )
Total stockholders' equity 458,806 345,342
Total liabilities and stockholders' equity $ 614,354 $ 488,871
Aruba Networks, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three months endedNine months ended
April 30,April 30,
2012201120122011
Revenue:
Product $ 110,531 $ 89,415 $ 317,632 $ 237,719
Professional services and support 21,111 16,186 59,286 44,588
Ratable product and related professional services and support 252 150 603 449
Total revenue 131,894 105,751 377,521 282,756
Cost of revenue:
Product 34,014 29,964 96,535 76,199
Professional services and support 5,484 4,167 15,060 10,615
Ratable product and related professional services and support 13 - 13 10
Total cost of revenue 39,511 34,131 111,608 86,824
Gross profit 92,383 71,620 265,913 195,932
Operating expenses:
Research and development 27,383 22,799 79,776 61,521
Sales and marketing 49,974 40,916 145,309 111,266
General and administrative 11,723 10,319 35,521 27,690
Total operating expenses 89,080 74,034 260,606 200,477
Operating income (loss) 3,303 (2,414 ) 5,307 (4,545 )
Other income (expense), net
Interest income 301 284 876 758
Other income (expense), net (675 ) 5,608 2,883 7,191
Total other income (expense), net (374 ) 5,892 3,759 7,949
Income before income taxes 2,929 3,478 9,066 3,404
Provision for (benefits from) income taxes (3,099 ) 277 14,887 901
Net income (loss) $ 6,028 $ 3,201 $ (5,821 ) $ 2,503
Shares used in computing net income (loss) per common share, basic 110,236 102,055 108,086 98,962
Net income (loss) per common share, basic $ 0.05 $ 0.03 $ (0.05 ) $ 0.03
Shares used in computing net income (loss) per common share, diluted 121,895 119,367 108,086 116,289
Net income (loss) per common share, diluted $ 0.05 $ 0.03 $ (0.05 ) $ 0.02
Aruba Networks, Inc.
Consolidated Statements of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share data)
(Unaudited)
Three months endedNine months ended
April 30,April 30,
2012201120122011
GAAP net income (loss) $ 6,028 $ 3,201 $ (5,821 ) $ 2,503
Plus:
a) Stock-based compensation expenses 19,784

17,595

61,973

45,287

b) Payroll taxes on stock-based compensation expenses 1,383

1,694

2,429

2,686

c) Amortization expense of acquired intangible assets and other acquisition related expenses 2,724 2,211 7,346 6,010
d) Change in valuation of contingent rights liability 246 (5,887 ) (2,992 ) (7,991 )
e) Income tax effect of non-GAAP exclusions (10,793 ) - (7,483 ) -
Non-GAAP net income $ 19,372 $ 18,814 $ 55,452 $ 49,035
GAAP net income (loss) per common share $ 0.05 $ 0.03 $ (0.05 ) $ 0.02
Plus:
a) Stock-based compensation expenses $ 0.17 $

0.15

$ 0.57 $

0.40

b) Payroll taxes on stock-based compensation expenses $ 0.01 $

.01

$ 0.02 $

.02

c) Amortization expense of acquired intangible assets and other acquisition related expenses $ 0.02 $

0.02

$ 0.07 $ 0.05
d) Change in valuation of contingent rights liability $ 0.00 $ (0.05 ) $ (0.03 ) $ (0.07 )
e) Income tax effect of non-GAAP exclusions $ (0.09 ) $ - $ (0.07 ) $ -
Non-GAAP net income per common share $ 0.16 $ 0.16 $ 0.51 * $ 0.42
Shares used in computing diluted GAAP net income (loss) per common share 121,895 119,367 108,086 116,289
Shares used in computing diluted non-GAAP net income per common share 121,895 119,367 108,086 116,289

* For the nine months ended April 30, 2012, dilutive shares have been excluded from calculating GAAP and Non-GAAP net income (loss) per share to provide comparability between GAAP and non-GAAP results. Including the effects of dilutive shares, the Non-GAAP net income per share would have been $0.46.

Aruba Networks, Inc.
Consolidated Statements of Operations
As a Percentage of Total Revenue
(Unaudited)
Three months endedNine months ended
April 30,April 30,
2012201120122011
Revenue:
Product 83.8 % 84.6 % 84.1 % 84.1 %
Professional services and support 16.0 % 15.3 % 15.7 % 15.8 %
Ratable product and related professional services and support 0.2 % 0.1 % 0.2 % 0.1 %
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue:
Product 25.8 % 28.3 % 25.6 % 26.9 %
Professional services and support 4.2 % 4.0 % 4.0 % 3.8 %
Ratable product and related professional services and support 0.0 % 0.0 % 0.0 % 0.0 %
Total cost of revenue 30.0 % 32.3 % 29.6 % 30.7 %
Gross profit 70.0 % 67.7 % 70.4 % 69.3 %
Operating expenses:
Research and development 20.7 % 21.5 % 21.1 % 21.8 %
Sales and marketing 37.9 % 38.7 % 38.5 % 39.3 %
General and administrative 8.9 % 9.8 % 9.4 % 9.8 %
Total operating expenses 67.5 % 70.0 % 69.0 % 70.9 %
Operating income (loss) 2.5 % (2.3 %) 1.4 % (1.6 %)
Other income (expense), net
Interest income 0.2 % 0.3 % 0.2 % 0.3 %
Other income (expense), net (0.4 %) 5.3 % 0.8 % 2.5 %
Total other income (expense), net (0.2 %) 5.6 % 1.0 % 2.8 %
Income before income taxes 2.3 % 3.3 % 2.4 % 1.2 %
Provision for (benefits from) income taxes (2.3 %) 0.3 % 3.9 % 0.3 %
Net income (loss) 4.6 % 3.0 % (1.5 %) 0.9 %
Aruba Networks, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended
April 30,
20122011
Cash flows from operating activities
Net income (loss) $ (5,821 ) $ 2,503

Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

Depreciation and amortization 14,217 10,963
Provision for doubtful accounts 17 4
Write downs for excess and obsolete inventory 3,845 2,445
Compensation related to stock options and share awards 61,973 45,828
Accretion of purchase discounts on short-term investments 869 997
Loss (gain) on disposal of fixed assets 539 (6 )
Change in carrying value of contingent rights liability (2,992 ) (7,991 )
Deferred income taxes 20,862 -
Recovery of escrow funds (702 ) -
Excess tax benefit associated with stock-based compensation (11,648 ) (15 )
Changes in operating assets and liabilities:
Accounts receivable (14,635 ) (23,674 )
Inventory 3,694 (7,211 )
Prepaids and other (11,214 ) (873 )
Deferred costs (2,113 ) (1,252 )
Other assets (11,572 ) (426 )
Accounts payable (7,206 ) (1,099 )
Deferred revenue 22,884 6,451
Other current and noncurrent liabilities (273 ) 8,009
Income taxes payable 10,051 138
Net cash provided by operating activities 70,775 34,791
Cash flows from investing activities
Purchases of short-term investments (136,524 ) (81,511 )
Proceeds from sales of short-term investments 48,030 19,876
Proceeds from maturities of short-term investments 44,200 51,030
Purchases of property and equipment (8,805 ) (5,776 )
Proceeds from sale of property and equipment - 14
Cash paid in purchase acquisitions, net of cash acquired (21,086 ) (4,303 )
Net cash used in investing activities (74,185 ) (20,670 )
Cash flows from financing activities
Proceeds from issuance of common stock 31,186 31,856
Excess tax benefit associated with stock-based compensation 11,648 15
Net cash provided by financing activities 42,834 31,871
Effect of exchange rate changes on cash and cash equivalents (143 ) (1 )
Net increase in cash and cash equivalents 39,281 45,991
Cash and cash equivalents, beginning of period 80,773 31,254
Cash and cash equivalents, end of period $ 120,054 $ 77,245
Supplemental disclosure of cash flow information
Income taxes paid $ 4,986 $ 781
Supplemental disclosure of non-cash investing and financing activities
Common stock issued in purchase acquisitions $ 12,000 $ 30,691
Contingent rights issued in purchase acquisition $ - $ 9,486

Contacts:

Aruba Networks, Inc.
Michael Galvin
Chief Financial Officer
ir@arubanetworks.com
or
The Blueshirt Group, Investor Relations
Chris Danne, Maria Riley
+1-415-217-7722
ir@arubanetworks.com
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